Question regarding fair share in an LLC
I don't post much if at all here on this forum but here goes. Myself and my sister want to set up an LLC where we are in it 50/50. Starting out, I'm sure we are going to have to look at owner financed deals or simply guarantee the loan with our own credit. My question is, everytime property is obtained, in the beginning stages, it's quite possible that we wouldn't be putting the same amount of money down. How do I determine fair share in the assets if we are 50/50 in an LLC if she put up 10% and me 90% of the downpayment for property #1 and I put up 30% and she 60% of property #2? I hope this question makes sense.
The easiest way is to split the ownership of the LLC in the same proportion as the capital contribution you make...instead of just doing 50/50 ownership...
I agree with J, because why should the business be 50/50 if the investment is not 50/50 (assuming the work done will be equal)? Additionally, if partner B plans on putting up additonal capital later to equalize the investment, the ownership percentage can be adjusted with the additional investment. In other words, you can start out owning different percentages in the beginning and end up with an equal share down the line.
Thx all, I guess it may be lopsided for the first couple of investments then we can go full biz credit when procuring more income properties.
What is the easiest way to change the ownership of the LLC if you started out as 90/10 and want to change it to 50/50 later? Also, how do you fire someone in the LLC and add someone else?
Originally posted by Erica Roberts:
What is the easiest way to change the ownership of the LLC if you started out as 90/10 and want to change it to 50/50 later? Also, how do you fire someone in the LLC and add someone else?
The Operating Agreement for the LLC (this is the governing document that lays out all the operational aspects of the company and the officers) should spell out specifically how things like changing equity percentages and adding/removing members.
But, in general, you can do things however you and the other members want to do them...just make sure you capture the agreement in detail in the Operating Agreement, so that there is little room for confusion later.
#2 Off Topic Contributor
- Real Estate Investor
- the villages, FL
Bruce- If either you or your partner are adding your time/management, %'s should change. Rich
J. Scott - thanks for the answer! Just want to clarify though. I set up an LLC to with my husband and I to make offers in. Did not have any current deals, so I decided to use this LLC for another deal that I have a money partner on, so I need to take hubby out of LLC and add money partner. Do I just draft up a new operating agreement or create an "exhibit" to existing agreement that outlines new terms? Seems odd that I could just create a new one to replace the old one but since it's really not filed anywhere, maybe it's as easy as that?? thanks!!