How does a capital investment in an LLC get apportioned?

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How does a capital investment in an LLC get apportioned?

Let’s say that my husband and I were to form an LLC with my in-laws. If they invested $30,000 and we invested $30,000 (for example) for capital, how does it work if the 4 of us were to be members? Would it be like if each of us brought $15,000 or should only 2 of us form the LLC?

Asked on November 4, 2010 under Business Law, Oregon

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

One of the advantages of an LLC over a corporation is the flexibility of apportioning ownership. You could have four owners with equal shares; two owners with equal shares; or any number of owners with unequal shares. For example, suppose that you and your husband will actually work in the business--contribute sweat equity--while your in-laws merely contribute money; in that case, you and your husband could jointly own, say, 2/3, while your in-laws own 1/3, even if monetary contributions are all equal. It's a function of what the investors, who will become the members of the LLC, negotaite and agree to. Also note that you can set things up so as to

1) have some investors  be owners (members) with an equity stake and others be "simply" investors with a right to repayment and interest

2) you can separate ownership from profit participation to a large degree; e.g. everyone who contributes equal amounts of money gets equal ownership, but those who actually do the work get paid more or a larger profit participation.

Again, it's whatever you decide. The four of you should sit down and work out something you are all comfortable with. Then retain an attorney to draw up an operating agreement reflecting that.


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