Sole P. of business and now I’m overloaded on work so 2 friends want to join me. Do I go to LLC? Do I make them founders? How to split company? Ideas?

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Sole P. of business and now I’m overloaded on work so 2 friends want to join me. Do I go to LLC? Do I make them founders? How to split company? Ideas?

I own a small online boutique and have been doing everything myself. I have been
very successful and stay SO busy. I honestly can’t keep up need help. Two of
my friends know this and offered to join the business with me. Question is.. I
have invested money, time, designed this business from the ground up. Do I
change to LLC and add them on? Do I split everything equal between us? Not sure
what to do? HELP

Asked on January 26, 2018 under Business Law, Virginia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Yes, the best way to proceed is to set up an LLC and transfer ownership of the business assets (e.g. inventory, equipment, name, intellectual property, etc.) to it (and also have it take over any leases or contracts, which may in some cases involving getting the other side to consent or agree to the LLC taking them over), then give your friends the appropriate interest in or share of the LLC. If you retain anything more than 50% interest for yourself (e.g. 50.1%), you will remain in control, while if you give them in totalmore than 50%, you no longer control things.
(An LLC, by the way, is always a good idea, regardless of number of owners: it helps protect the owner[s] personal money and assets, such as home, from most business-related debts and liabilities.)
You need to discuss with them first what their expectations are. If they want to be equal partners with you, then they should most likely invest their own money: otherwise, they are getting shares equal to you without having to put their own assets into it the way you did, which is unfair. Or in light of the investments you made, they may be willing to join without receiving equal shares (e.g. 24.5% each), so you will retain control as your "premium" for having put your money into the business and built it from the ground up.
Other issues are: suppose someone wants out--can you buy out his share at a pre-determined price, to avoid having to haggle and negotiate about it later? Can they sell their shares to anyone they want, which could mean you end up working with people you don't know or like? Who is paid how much? Etc.
A good idea is for the three of you to have some preliminary discussions, then meet with a business attorney, who can help you refine your thinking and ask about other important points that may not have occured to you--then, when you all are in agreement, create and register LLC, draw up the operating agreement that will govern it, and help with the transfer of assets and contracts.


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