Members investment in LLC...

[campfool]

What is the name of your state? IN

I want to start an LLC. I've done this before and, luckily, its fairly simple (and cheap) in Indiana.

My questions are, how do I solicit outside investments in the LLC without:
a) Giving up any ownership/taking on new members (I'm assuming that if I take on members, I'll be giving up a portion of the ownership and control)
b) Placing any undue tax burdens on the investors

Ideally, I would like to offer something similar to non-voting "shares" (I know, there are no shares in an LLC, bear with me here...). This would allow folks to invest in a semi-formal structure rather than feeling like they are "loaning me money". If the LLC does well, at some point in the future, the investors will do well. If the LLC doesn't do well, unfortunately neither will the investors.

Any suggestions?What is the name of your state?

 

[tranquility]

You want people to invest without investing? To take the risk without gaining concommitant benefit? To consider the money they give you a loan if the business is successful but to consider it an investment if not?

My suggestion is to just defraud them up front, rather than try to do it all legal-like.

 

[campfool]

You want people to invest without investing? To take the risk without gaining concommitant benefit? To consider the money they give you a loan if the business is successful but to consider it an investment if not?

My suggestion is to just defraud them up front, rather than try to do it all legal-like.

Oh brother... What a load of crap. I should've known better than to post a question on the Internet. The self-rightous kooks always are the first to reply.

I won't even bother to try to explain what my question is, as you're already so high up on your soapbox you'll never be able to see my point back down here at ground level.

Thanks for nothing. Glad you could bump your post count up by 1.

 

[oldman9]

So you want investment without giving up control. You have 2 choices:

1) Limited Partnership: You become the General Partner who has all the control. The investors become the Limited Partners who have NO control whatsoever, who give you the check, shut up, and wait for a bigger check. You need to draw up an Operating Agreement to detail EXACTLY who has what responsibilities.

2) Joint Venture: You need to draw up an Agreement to detail EXACTLY who does what.

BE CAREFUL of pooling money though, or you will get the attention of the SEC. The BEST way of pooling money is to get all these investors to form their OWN LLC, and will lend you the money, as a group.

As far as "tax burden on the investors," there is no way around it. If the venture makes money, everyone will be taxed.

My questions are, how do I solicit outside investments in the LLC without:
a) Giving up any ownership/taking on new members (I'm assuming that if I take on members, I'll be giving up a portion of the ownership and control)
b) Placing any undue tax burdens on the investors

Ideally, I would like to offer something similar to non-voting "shares" (I know, there are no shares in an LLC, bear with me here...). This would allow folks to invest in a semi-formal structure rather than feeling like they are "loaning me money".

 

[campfool]

So you want investment without giving up control. You have 2 choices:

1) Limited Partnership: You become the General Partner who has all the control. The investors become the Limited Partners who have NO control whatsoever, who give you the check, shut up, and wait for a bigger check. You need to draw up an Operating Agreement to detail EXACTLY who has what responsibilities.

2) Joint Venture: You need to draw up an Agreement to detail EXACTLY who does what.

BE CAREFUL of pooling money though, or you will get the attention of the SEC. The BEST way of pooling money is to get all these investors to form their OWN LLC, and will lend you the money, as a group.

As far as "tax burden on the investors," there is no way around it. If the venture makes money, everyone will be taxed.

Wow! This is exactly what I was looking for. Thanks for giving me a great starting point to work from. Now I can find myself a local attny and be able to articulate what I want to do.

Thanks again.

 

[tranquility]

Um..how did oldman9's response meet your needs? If you are the GP with complete control in a limited partnership, you may not have a limited liability so it's not like an LLC. Even though a person as a GP may have control, the LPs have actual ownership in the percentages related to the investment according to the organizing documents. (Violating the desire to not give up *ownership* and control.) There is going to be an additional compliance "tax" on the organization (reporting) as well as some other fees related to the organization. Of course as oldman9 had said, income taxes will need to be paid on income by everyone--but I don't think that is undue.

The answer I gave is still true. While a limited partnership will help with some of the things you mentioned, it will not help with them all.

Info edit:
You might want to form an LLC to be the general partner in the limited partnership, which will get you closer to your goal. *I* wouldn't invest in something like that as I've seen all the difficulties involved, but if you're seeking people you know as investors, you might generate some cash.