LLC with 2 members vs Corp to Corp
I am considering forming an LLC, developing a B2B service platform. I am an independent consultant/developer, and have been working with another individual for several years. Over this time, we have developed a good relationship with a niche business market, and the service I am developing is for this niche market.
I am trying to determine the best way to structure this company. I am developing the product and running the day to day of the business. He however has client relationship, and can (and already has) sell the product very well to this market.
I am trying to determine what would be the best business structure for us. The initial, and common thought (since he's a valued member and part of the business' success is reliant on him) would be to form a 2 member LLC.
However, we live on opposite sides of the country and we agree that it would be difficult for us to both actively run this company from afar and we don't want to get into a 50/50 split mess nor deal with taxes together, etc etc.
We agree that I am going to be running the day to day operations, the service is my IP, etc. I have suggested that maybe I could form a single member LLC myself, and hire him with a corp to corp agreement. He's interested in the idea. We both agree that we would want to make the corp to corp agreement out in such a way that he gets certain partner benefits - such as his corp is due a certain percentage of the company's profits. I think he's okay not being member of the LLC as long as the corp to corp agreement is fair.
I think this is a better idea for us as we will be dealing with little cash and will not be working full time on this for the first year or so - we are more concerned about market penetration. Once (ahem...if) we grow and this turns into both of ours' full time job then we can ditch the corp to corp agreement and add him as a member of the LLC.
Is this a good idea? Are there more things to consider?
LLC Business Corporate Structure Organization
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Why do you need a LLC now if your business works fine without it? – Littleadv 12 years ago
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Largely liability. We deal with very sensitive data – Conrad 12 years ago
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LLC will protect you from liability issues because of your employees, not your own. Are you aware of that? I suggest you first discuss with a lawyer your liability protection needs. – Littleadv 12 years ago
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@littleadv, I wasn't aware of that and I don't think it is correct. See http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html – Kekito 12 years ago
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@Kekito look at the first exception : "personally and directly injures someone". If you're an LLC owner, and you *personally* cause the damage - you're *personally* liable, there's no liability limitation. – Littleadv 12 years ago
1 Answer
If you retain full control of the LLC this is more advantageous from the point of view that you have complete control of the LLC.
On the other hand if they do not have ownership and have their own corporation or LLC then all of their relationships would likely be owned by their LLC, so it might make sense for you to negotiate a partnership with them.
It's a complex decision based on your relationship with them, the likelihood that you will want them to be a part of your business for the long term versus you retaining full control of your business (and they retaining full control of their business).
There is no single right answer to the question.
