QUESTION
2 LLC companies form a Partnership the ownership is 70% 30% which profits are pd. Does the capital contribution need to the same?
Asked on Mar 06th, 2020 on Business Law - Colorado
More details to this question:
The company, LLC Partnership ownership is 70% & the other 30% which how the profits are paid. Are Capital Contributions handled in the same manner The LLC with 70%, contributes to company expenses 70% and the other LLC contributes 30% CORRECT? The Agreement presently reads Startup Capital Contribution is $2000 the Agreement reads both LLC's contribute $1000. Should it be the LLC with 70% ownership Pay $1400 the LLC with 30% contributed $600???
1 ANSWER
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In general, you have great flexibility to set the terms of the operating agreement of an LLC. The equity %s do not always need to be the saem as the profit/loss %s. Further, equity %s do not in general need to reflect actual capital contribution %s. Based om the terms pf the operating agreement, the capital contributions do not need to be the same %s as the equity ownership %s. Saying all that - The IRS does have certain regulations such as the Substantial Economic Effect rules which coudl be applicable to curtail some types of allocations so care needs to be made in drafting the operting agreement.
Answered on Mar 12th, 2020 at 12:59 PM