Basic Training: How to Divide Profits in an LLC
By Nina Kaufman, Esq.When you’re in business by yourself, the math is easy. But when you have multiple owners, how should you share the spoils? That’s the nature of this week’s basic training post.
Q: How should I divide profits in an LLC?
A: Especially in an LLC, you have many options for how to divide your profits. There’s no hard-and-fast rule. The formula you choose can depend on a number of factors, including:
- The number of people actively involved in the day-to-day operations of the business
- Whether there are any passive investors who have contributed capital
- The extent to which the active owners are actively involved (e.g., are some full-time with the company, whereas others are only part-time?)
- The non-cash contributions the owners have contributed to the company (e.g., inventions, client lists or other intellectual property) and the value placed on that contribution
- The time commitment each owner is prepared to make to the business (are some in it for the long haul, whereas others want a quick ROI and to move on?)
It’s not something you want to take lightly, because it will guide the amount you’re required to pay someone to buy him or her out, should the time come. Best to speak to an attorney and an accountant in your area who can specifically guide you to the result that’s right for your company.
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