QUESTION
Passive partnership for LLC just formed
Asked on Aug 13th, 2014 on Business Law - Pennsylvania
More details to this question:
me and my partner have registered LLC with PA state already. Our operating agreement is yet to be made. Out of two fo us, I can only be passive partner in LLC due to legal status. Also we want to split the profit 50/50. As it is consulting firm he is operating all on his own but as of now due to his working from home we dont have much investment except some hundred of dollars for forming LLC. Can i still be passive partner? How can we show that i am just a investor? Is there a minimum investment required to prove passive partnership legally as i dont want to mess up my legal status.
1 ANSWER
Although many people, including lawyers, use the terms interchangeably, you are not partners. Both you and the other investor are members of an llc. There is no reason why you have to work for the llc in order to invest in it. It is quite normal for one member of a 2 person llc to invest his time and effort, while the other only invests money. Normally, assuming that they each own 50% of the llc, the one investing time and effort either invests less money than the one investing only money (because he/she is investing time and effort), or receives employment compensation beyond just his share of member distributions. Your operating agreement should spell out, among many other things, the role each of you will play in the llc - that the other investor will manage the llc while you will have no hand in the llc's operations.
Answered on Aug 13th, 2014 at 11:35 AM