QUESTION

Is it necessary to switch from a LLC to a C-Corp in order to offer equity in your company to an individual?

Asked on Jan 18th, 2012 on Business Law - Massachusetts
More details to this question:
I run a pre-revenue start-up company. It was formed as a LLC and I currently have 100% ownership. Two months ago I received a $15K investment. The terms we agreed upon were convertible debt. His investment would turn into equity at either a specific amount of institutional funding or a certain time period, whichever comes first. Within the last two weeks, I have decided to offer equity in the company to an individual who will take us to revenue faster. I don''t have the money to pay him a salary so we spoke and I want to issue him equity. Am I able to offer him equity as a LLC or should I change to a C-Corp? We''ll hopefully getting more funding in the near future, too. Additionally, I want to know how the first investor''s investment will be effected if I give someone else equity? Thank you.
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1 ANSWER

Litigation Attorney serving Greenwich, CT
Partner at Hilary B. Miller
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Of course you can provide him with an LLC interest (or a debt instrument convertible into an LLC interest) in exchange for his investment. Many start-up businesses are financed just this way. Your attorney -- you need one -- can assist you in documenting the transaction properly.
Answered on Jan 18th, 2012 at 9:34 PM

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