Legal Question in Business Law in California
LLC: Dividing Equally?
Me and one other guy have built a website that is starting to generate some cash. The other guy technically owns the site, but has given me a verbal agreement to pay 50% of the commission made from the site (he has done this faithfully so far) for me helping to build it up.
Now that the site is making more money, we're considering forming an LLC (California) to secure our equal shares of the commission.
My friend heard that you should divide an LLC up like this:
partner 1 = 49%
partner 2 = 49%
partner 1's trusted ally = 1%
partner 2's trusted ally = 1%
The point of doing it like this, he says, is that in the case of one of us dying or going into a coma (or some other tragedy) the LLC would be better safeguarded because no one person has a full half share (can you explain this logic to me? Or what scenario would put an LLC in jeopardy in these circumstances?)
Does this make any sense to you? Is this just paranoia, or good business savvy?
Thank you
4 Answers from Attorneys
Re: LLC: Dividing Equally?
Sounds like a pinch of logic seasoning a pound of paranoia. There are many different ways to organize the LLC. The best place to start is to agree on goals (e.g. equal profit sharing, what happens when we can't agree, estate/succession planning, etc.). Bring that list of goals to an attorney (who will probably ask some additional questions you never thought of) and create your customized organizational and management documents based on accomplishing those goals. One of the purposes of these documents will be what I call Relationship Insurance. They should create a roadmap that reminds you of your original intentions and provide a path through later conflict. Best of luck with your venture!
Re: LLC: Dividing Equally?
Would not recommend this. There are other ways to protect your interests when you have an LLC formed properly. You can separate economic interests from ownership interests and management interests and allows different stakes for each. you can also make contingencies in case of....
Best,
Daniel Bakondi, Esq.
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Re: LLC: Dividing Equally?
I agree that you may be able to address his concerns in other ways. Keep communication open regarding concerns. Contact me directly.
Re: LLC: Dividing Equally?
Not really sure I like the idea. I understand where the idea is coming from, but any properly made agreement between the two of you should be able to cover this situation.
We have extensive web and contract drafting experience, please feel free to contact me at the info provided by LawGuru if you need further assistance.
Scott
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