So you’ve had your head in the game for a couple of years and now looking to bring in another partner. One of my favorite daily websites to read is INC.com, and a reader recently wrote in asking about expanding their LLC by bringing in another partner.
Be sure to consider whether you want to bring in a capital partner or profit partner:
A capital interest entitles a partner to a share of the profits and an interest in the underlying assets. A profit interest gives a partner the former but not the latter. The difference becomes crucial when the company is sold. At that point, a capital interest entitles the partner to a share of the proceeds, but a profit interest gets him a cut only of the company’s increase in value. Capital interests are taxable upon receipt, but profit interests typically aren’t. If your partner wants to avoid an immediate tax bill, a profit interest is usually the best way to go, says Brian Snarr, a partner at New York law firm Morrison Cohen.
If you’re recently started your company using an LLC, it’s never to early to consider raising more capital by bringing in another partner. It would be prudent to have your agreement(s) reviewed by counsel, and have your potential partner have independent representation, if they chose so.
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