Forums: Discussions for entrepreneurs and small business.

So, I have successfully pitched my company to a local group of investors.  They see the market need and the huge potential.  At the end of my presentation, one of the investors, who owns 13 McDonalds in the local area, says, "I'm interested in investing, I'm just not interested in being part of the business.  I don't want to be involved in operations, I want to make money."  Others are interested as well.  The company is an LLC.  Can I give them a share of the profit without making them members of the LLC?  Can any of you provide any advice?

I have sought legal help and will be meeting with him soon.  Right now I am seeking a CPA as well.  I will create an operating agreement, but I want to make sure I understand absolutley everything first.  Any advice would help.  We are an IT company (The IT Support Department, LLC) specializing in support small and medium businesses networks.  We also have a residential division (called My Tech Team) in which we maintain and provide 24/7 tech support for home-based PC users as well.    We have experienced huge growth in the residential division and have saved PC users well over 2k-3k every month.  You can read more about the residential division here:  http://www.mytechteam.net

and the business division here:  http://www.itsupportdept.com/itsupportold

sorry about the /itsupportold.  We are working on uploading our new site.  Any advice, warnings, experiences, etc.?

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Computer Support|Online Computer Repair|Online Tech Support

JasonG,

 

There is most definitely a way to distribute profits to your investors without them having owning equity.

When choosing legal council for this activity -I'd make sure to ask about their experience in the securities area.  I can provide you with a referral if you desire.

If you want to discuss your situation , send me a PM or contact me directly

 

 

 

 

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Business Growth Masters, LLC -
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Home of the Scalable Business Plan and QuikStart Capital Programs
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Jason, I think you’re misinterpreting the comments of this potential investor, as maintaining an ownership interest in a business does not necessarily entail any management or operational functions. As a matter of fact, a solid operating agreement typically precludes investors from assuming an active role in the day-to-day operations of the business.

While Robert is correct in saying that there are ways to share your profits with non-equity holders, these scenarios are typically linked to royalty payments, franchise fees, and a few other profit sharing vehicles.

With that being said, most investors do expect to own a certain ownership interest or rights to assert an ownership interest in a company (e.g. through warrants) when making an investment in a company. As I’m sure you can imagine, the way you structure capital investments in your company can have many widespread legal, tax, and financial implications for you and potential investors; especially since you adopted a LLC as corporate structure.

I’d also like to caution you when it comes to retaining an attorney. While many attorneys have brilliant legal minds, they don’t necessarily understand corporate finance. I would therefore recommend that you consult with a qualified strategic or financial advisor to map out the details of the deal (e.g. valuation, offering structure & terms, etc.) before retaining an attorney to construct the legal framework of the deal.

While getting the nod from a potential investor is certainly great news and quite encouraging, I wouldn’t read too much into it. There are many issues that need to be addressed and details to be ironed out before an investor’s commitment becomes final and legally binding.

If you’re interested in discussing your project in greater detail, please feel free to send me a PM and I’ll try to give a few additional pointers.

I hope this helps.

Mark

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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
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