Forums: Discussions for entrepreneurs and small business.

I`ve have a small service business and also had an employee or two.  I hated it and learned that it`s not worth having employees unless you have enough of them.  The amount of work and costs and regulations that you have to follow with employees just isn`t worth it for me to run a business with just a couple of employees.   I would love to have a decent amount of people working the business at some time, but would like to grow into that as the businesss expands.  So that`s just a short overview of my experiance.  But here`s the real question.  CAN I USE THE LLC MODEL TO AVOID HAVING EMPLOYEES?  So each new member is also the team member that does the work out on the field.  They would be a part of the business as a member having right to vote and guide the business but at the same time they would do the work.  From what I`ve read I think this can work but I`m just not sure.  Overall I think this model would clear up some of the headaches with having additional people as employees.  At the same time it would give the people working a sense of being part of the company instead of just "worker bees".  Any imput would be greatly appreciated.

That`s interesting, I`m also facing a similar question with my LLC. For me, I have one person who is currently subcontracting for me with the understanding that he will be added to the company as either an employee or a member once sales reach a certain level. What I`m stumbling over is, a) as a member, what will his credit history do to my company and vice-versa; b) if he fails to perform (which is occasionally the case) do I still owe him a percentage of the company equity and/or profits; c) will I have to get his permission every time I want to make some maneuver?

Something I have considered is starting another LLC under ownership of my existing LLC, and sharing equity with him in that. Then if anything goes wrong, my real company remains intact. Also, along the way I can divvy up ownership of projects, equipment and so forth to protect certain things in the event his membership doesn`t work out.

But, I have not made any decisions yet.

—paula

I`m wondering if you aren`t stretching the LLC concept past it`s breaking point here. It isn`t that what you are suggesting is wrong or illegal (as far as I know - I`m not an attorney), but I`d be concerned that you would just be trading one set of headaches for another.

For example, let`s say you bring on two additional members, then things get tight, and you need to let one go, except you can`t because they out-vote you! To get around this, you would need a very well constructed partnership agreement, which would have to be created in cooperation with an attorney... you see where I`m going? Trading one headache for another.

Even though having employees can be a pain, at least hiring, firing, and paying are all legally well defined.

I`ll be interested to hear what you decide. Good luck!



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Hi,

I  agree that you may be trading one headache for another.  But remember you can classify ownership, voting rights, distribution of profits, and dissolution distributions in your Articles. 

Rabbit, your idea of creating another LLC that is a "Consulting Firm for XYZ Industry" might be worth looking into.  This company (members) would be in charge of operations for "XYZ Industry" which your original company might just be the sole customer of.

You will need to make sure your original company is in control of decisions...you will be crossing a thin line; I suggest you take a look at this page on IRS site:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Jeff