February 12, 2018 at 5:59 pm #160402
Hi, Just a simple question on LLC share capital allocation and profit sharing. I need an advice. I have a LLC with three members; Mr. A, B & Ms. C.
Mr. A is myself the business owner, who works as a consultant for an Oil & Gas Company, which means he goes offshore and can only work in the LLC for 6mnths or less in a year. Mr. B is not expected to work on daily basis in the company for now, he supports the LLC with little funding, Secure Bank Facilities & business contacts. While Ms. C is expected to run the LLC on daily basis. She also expects a monthly stipend. What’s the best share capital structure for this LLC?February 12, 2018 at 8:13 pm #161988
Honestly, share capital allocation, if you’re setting up your LLC, is just a negotiation. Whatever everyone agrees to is likely what’s going to happen. If you already have ownership and you’re trying to re-allocate then you’ll need to allocate based off of capital put into the business. So based on business value and the amount of capital you invest, you earn a certain amount of equity.
I don’t think there’s a right and wrong answer to initially setting up ownership interests, as long as everyone’s philosophical interests are aligned. If you’re going into it as partners because the idea/money/initial execution is pretty well distributed then I’d split it into thirds with equal ownership. Ms. C, while being in charge of the day-to-day, can receive a salary from the business for the work she’s putting in since she’ll be an owner and an operating executive.
I think really it comes down to what each of the 3 involved think is fair.