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Forums » Business planning

LLC set up and profit distribution

    • 101 posts
    August 6, 2007 11:45 AM EDT
    Usually the operating agreement would address this.  But since the 4 partners do put in an equal amount of time / energy and each has value to contribute...  maybe you could do a blended distribution.  50 % of profits split according to capital contributions and the other 50 % split based on time contributed.
    • 2 posts
    August 6, 2007 10:50 AM EDT
    We are at a real dilemma as to divide up profits. We have 4 partners, 2 contributing the same amount of capital, 1 contributing somewhat less, the 4th, a great deal less. Naturally, the 2 with the greatist risk are entitiled to the greatist return. However all partners will be working extremely hard, giving equal amounts of effort, many hours and all partners have value to contribute. How can we fairly divide profits so the lessor partners can benefit and grow into the company, compensating all for time put in as well as risk. An equal split based on % investment will simply not allow this. 
    • 2 posts
    August 10, 2007 12:42 PM EDT
    Thanks for the input everyone. 
    • 88 posts
    May 19, 2010 8:32 AM EDT

    It all depends on what was agreed upon when the company was formed. It's hard to discuss this now without offending any of the existing partners.

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    • 10 posts
    August 6, 2007 11:46 AM EDT
    Have you thought about dividing duties instead of profits? Perhaps those
    partners who have less capital to contribute may make it up by taking on
    extra duties or different responsibilities. This way, profits can stay equally
    divisible but work responsibilities can be divided to make up for the unequal
    capital contributions.
    • 1 posts
    September 11, 2007 3:35 AM EDT

    Great input everyone.  If only I needed to know about having four partners this might be applicable.  Any ideas for people that can`t just ask you questions to your face and talk behind your back?

    No need to respond.  Not really for you in this forum.

    • 927 posts
    August 7, 2007 5:57 AM EDT

    This is an interesting challenge and one that many startups have to resolve.

     

    Generally an equity investor benefits from the appreciation of their ownership because of the increased value (valuation) of the company.

     

    In an LLC it is possible to set up a method whereby the operating profits (losses) are distributed independent of the ownership percentage.

     

    Since all 4 will be working “full time” in the business, you could distribute the results (operating profit) equally among them all. As the company grows and succeeds – each person’s equity would increase in value according to their percentage of this ownership.

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