A Limited Liability Company is a business structure that has become popular with small business due to its simplicity, its ability to protect the personal assets of a company’s owners similar to the protectdion offered by a corporation, and an LLC's “pass through taxation” that lets its owners, called members, report their share of profits on personal tax returns and avoid a double taxation on the company itself. Investing in an LLC involves primarily buying an ownership stake in the company.
Consult an attorney for any legal and tax ramifications when becoming a member of an LLC. Because an LLC does not issue stock, an investor needs to understand how an ownership stake in the company affects his financial situation, and a particular company's requirements and responsibilities for its members.
Obtain the consent of all current members before any deal is made. The addition of a new financial stake in the company will usually dilute the profit shares of existing members, so their consent is normally required. Paralegal Plus states on its website that an LLC’s operating agreement in some instances may provide for selling an interest in the company without full membership consent, but in those cases the agreement normally sets conditions for a new member. such as requiring the new member to make a minimum capital contribution.
Draft an agreement with the LLC to formalize your assuming membership in the company. The agreement should spell out your percentage interest in the company, distribution of profits, and other details. Regulation D Resources notes that LLCs have become popular with companies to handle one-off style deals, such real estate developments or commercial film productdions, where there is a set end for a project. Membership agreements in such one-off LLCs need need to definie the details of the project’s dissolution and final distribution of profits.
File any necessary forms required by the state in which the LLC is registered to amend its organization to include you as a member. Specific filing requirements vary from state-to-state.
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