How to bring in a partner into an LLC?
The company I am joining is an LLC at the moment. The founder wants me to join as a co-founder of the business and the founder has agreed to give me 15% while he has 85%. We got a partnership agreement from rocketlawyer.com and have that signed. What else do we need to do in order to formalize this partnership?
Also, I am spending money on behalf of the company. How do I officially write off this investment cost since I am not officially listed on the LLC and not associated to the tax ID of this business?
Neither of us have legal or accounting background and we dont have a lot of cash to afford a lawyer.
3 Answers
If you are in the United States you will have to check with your secretary of states office. You will usually find that information on their website as each state works a little different.
You'll need a corporate resolution to grant you the shares.
As far as spending money on behalf of the company, you should be spending the company's money, not your own. If you are going to invest some cash into the company, then invest it. If you are going to lend it, then lend it and put it into the corp's bank account. You should not be spending money from your account unless you are, regularly, filling out expense reports and getting reimbursed by the corp.
Being associated with the tax id is not an issue. The issue that you need to understand is separation. The LLC is a completely separate legal entity. It needs its own money and you own part of it. Do not confuse those two things.
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The Q is confused enough as concerns partnership vs. LLC terminology and issues. I voted this answer down because references to corporate resolutions and shares are inappropriate and make the confusion even worse. – Dana Shultz 13 years ago
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@Dana, I understand and certainly you have the background on legal issues. However, he clearly says the company is an LLC. If there is an LLC involved, correct me if I'm wrong, he's going to need a corp resolution. Anyway, thanks for keeping me in check. :-) – John 13 years ago
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LLCs are not corporations and, thus, cannot have corporate resolutions. – Dana Shultz 13 years ago
First of all, a partnership agreement is probably not what you want because, although an LLC is taxed (mostly) like a partnership, it's not a partnership. The normal document is an LLC operating agreement. And, you can't just find any old LLC operating agreement -- you should have one that actually matches the deal between you and the other member.
If you don't have the cash to hire a lawyer (and not just any lawyer -- you want one who is familiar with limited liability companies), then at least find an LLC operating agreement that allows the members to hold different membership interests and deals with how decisions are going to be made between the two of you That won't solve all the problems that you're going to run into down the road, but it will help with two big ones.
Secondly, if you are spending money for the company, you should keep track of those expenses and ensure that they're recorded on the company's books as a contribution by you. You don't get to write those off directly, but those expenses should offset the LLC's profits, and thus reduce the tax that the two of you have to pay each year.
