I am starting a new LLC with a partner. My partner wants to bring in someone else to contribute to the accounting, grant writing, and to assist in some of the businesses day to day structure. In exchange for a their services they are going to bill us for their services either by the hour or by the assignment. We do not have to pay the funds upfront but we are expected to give a percentage of our LLC in the amount of 10% based on the work provided. They will not be an official member or be entitled to make an corporate decisions, they will only have a cash interest based on the work they provide at the rate we agree upon.
In this case what should be the official title of that person? Would they be an assignee or something to that effect?
3 Answers from Attorneys
As a Franchise Attorney I can tell you the following. This is not the type of question that can be answered without a full consideration of all facts and circumstances. Also your narrative contains a contradictory statement. Why would this person bill your LLC by the hour or by the assignment and still receive 10%? And 10% of what; what does "cash interest" mean? You need to consult with a good business or franchise attorney in your area to iron out all these details and for specific advice .
Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.
Franchise Foundations, a Professional Corporation
I agree with attorney Murphy's response. There is not a simple answer to your question. These are the situations that blow up into a mess if all documents aren't properly prepared. Generally, you will have an operating agreement between you and the other member of the LLC. The other person will be a consultant/independent contractor that will be able to share in the "profits" of the company (however that is defined). Again, there are lots of questions that need to be answered before you move forward, but make sure you have the appropriate documents in place before you get started.
I advise all my clients to scrutinize business partners and business situations more than a potential spouse. You need to put together an operating agreement and spell out what happens when the business partnership breaks down. You only need to look at Facebook and the lack of agreement when they started that venture.
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