Forming an LLC w/ 3 people. Do we need to write up an agreement for profit splits?

lschmidt

lschmidt

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Jun 11, 2007
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I'm working on a web app with 2 other guys, it will be generating monthly recurring revenue. We are friends, so we haven't formally started an LLC or any written agreement. I think it would be in all of our best interest to hammer out details on what happens when we start getting paid. So we're planning to start an LLC -- but beyond that, how do we legally declare how much we can each pay ourselves? We were planning on an even 1/3 split between us for all profit generated. Does detail in particular have to be written or drafted up?
 


why not start an s-corp? give each of you the same amount of shares... and yes of course get a contract lawyer to write up an agreement...

there are more things you need to do like set up a trust incase one of you die suddenly and your assets are frozen... basically rendering the business frozen until everything is sorted out... also you could end up with a partner you dont want to do business with

prob best to talk to a lawyer (contract lawyer can prob walk you through it as well)
 
LLC with 3 members, each with equal 3rds, and a buy-out provision with unanimous decision required.

That is only my opinion, and I offer no legal advice. Consult your attorney (which you should be doing already by the sounds of it). You'll also need to talk to someone who can offer tax advice as that will have a profound long-term impact also.

Edit: What -joe- said. He beat me to the punch.
 
You guys need to get some things down on paper. You should see an attorney but if nothing else at least write it down. A few thoughts

Expectations of each partner
What happens if some one lives,dies,or quits
Buyouts
How will disagreements be resolved or mediated
What about if someone gets divorced


These are only a few off the top of my head. More than likely you will lose your friendship over this business, so cover your ass now
 
productionhead said:
We have a No Beta Males clause in the circles I run in to prevent happenings such as this
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All the more reason. After she finds out one of you were cheating on her she will divorce you. One of the 3 of you will be divorced in 5 years or less(if married) so make sure you deal with this now. Do not under estimate these posts. If this site is worth a pinch of shit, you will be happy you didn't. Even if you don't expect to be much, do it anyway
 
I have a good lawyer for this if you like I can reference you if you like. Just had the same exact thing done.
 
lschmidt said:
I'm working on a web app with 2 other guys, it will be generating monthly recurring revenue. We are friends, so we haven't formally started an LLC or any written agreement. I think it would be in all of our best interest to hammer out details on what happens when we start getting paid. So we're planning to start an LLC -- but beyond that, how do we legally declare how much we can each pay ourselves? We were planning on an even 1/3 split between us for all profit generated. Does detail in particular have to be written or drafted up?
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When you setup the LLC, allocate the other two members 33 shares at one dollar a pop, take 34 shares because you are going to lead the company formation, plus it's always good to establish your authority.

You can put all sorts of shit in your operating agreement that won't matter. Until you bring on other investors, the only time the contract is necessary in a 3-way partnership is for partner disputes. You need to setup a way to get rid of other partners from an active role within the company, or even better, setup a forced buyout clause to get rid of partners that suck/slack off.

I'd setup a 2/3 vote shotgun clause. This means you can get rid of one partner with the consent of the other. Obviously, this can backfire and you could get bought out. Don't let it happen. Establish yourself as vital to the business and maintain healthy relationships, separately, with each partner.
 
I just formed an LLC with my friend. PM me and I can connect you with the attorney we used. We are in CA and got everything done for <$700.
 
You've been a member here since 2007. Please tell me you are not as naïve as you sound with these two sentences:

lschmidt said:
We are friends, so we haven't formally started an LLC or any written agreement... Does detail in particular have to be written or drafted up?
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No, don't write anything up.. I've never heard of things going wrong with business partners.

Come on, son. Start with this at least: Free LLC Operating Agreement for Limited Liability

Best of luck in your venture. Nothing will probably arise, but you want your ass protected in case something does.
 
-joe- said:
Personally, I'd be seeing both a lawyer and an accountant.
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This ^. Do this before it grows. It will be harder to negotiate fair terms once it gets bigger. You never know how big it's going to get. You want to take care of this asap before everyone starts seeing the $ signs.

Have a look at a Russian roulette clause as well. This will avoid arguments over how much the shares are worth if anyone ever decides to sell out but doesn't agree on the value of the shares.

It works like this. Shareholder A makes an offer to buy shareholder B’s shares. If B is not prepared to sell at that price, A is obligated to sell his/her own shares to B at the same price. This is designed to ensure that the original offer by A is a fair one.

Partnerships rarely work and you don't want long drawn out legal battles if there are any disagreements.
 
LLC's can be filed like partnerships which is a good thing about them, you just need to have a partnership agreement drafted which shouldn't be too expensive.
 
OP, drop me PM.

I will try to remember your names and shares for you so you don't need a lawyer and shit.

If something goes wrong you simply refer to me and I will try to say who is owned what, best to my knowledge.

Last survey showed 9 out of 10 WF members would trust me on any issue, this includes complex operation done on their testicles.
 
Contract everything...

Back in high school I had a business with another person.. They kept some of the money since we didn't agree to any terms in writing. Not really anything I could do about it.

Never doing that again, glad I learned my lesson really early on. (Not the reason I chose my username though..)
 
lschmidt said:
I'm working on a web app with 2 other guys, it will be generating monthly recurring revenue. We are friends, so we haven't formally started an LLC or any written agreement. I think it would be in all of our best interest to hammer out details on what happens when we start getting paid. So we're planning to start an LLC -- but beyond that, how do we legally declare how much we can each pay ourselves? We were planning on an even 1/3 split between us for all profit generated. Does detail in particular have to be written or drafted up?
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Wow, people this naive exist. Oh the shocks you are in for in life OP.
 
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