How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Richard Your Own Question
Richard, Attorney
Category: Business Law
Satisfied Customers: 53721
Experience:  32 years of experience practicing law and a businessman.
Type Your Business Law Question Here...
Richard is online now
A new question is answered every 9 seconds

We are helping a friend go into business. He is setting up

This answer was rated:

We are helping a friend go into business. He is setting up the LLC. We are loaning him money to start up in exchange for the following:

Part A: he pays us back first off the gross receipts plus interest
Part B: after the loan is repaid, we will have/own 20% of the company... presumeably in stock
Part C: if my spouse decides to leave his job and go "sell" with the friend, they will be 50/50 partners in the net profits.

My Q is this: What is the best way to set this up? Pros/Cons, etc. We already have an LLC of our own. Should this be an agreement btwn the two LLCs (ours and his)? Or should we be on the new LLC, too? Or should he set up his LLC in his name and keep the agreement outlined above separate btwn his LLC and us personally (not our LLC, more like a partnership agreement?).

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. I would suggest you become an owner in the LLC from the beginning so that you can build in the terms and provisions of your agreement in the Operating Agreement now while everyone is happy. You don't want to get your 20% later and then not be able to agree on the Operating Agreement when he already has your money. Also, you don't want to treat this as a note so you don't run the risk of any usury issues with respect to the 20%. So, it's best to be admitted now and provide in your Operating Agreement for the LLC that distributions are to go first 100% until you receive cumulative distributions equal to your money, and then split accordingly. You also want to specify exactly what compensation he is entitled to for working for the LLC so you don't have a bunch of money going out of the top. You can be individual members of the LLC as it's already a limited liability entity.

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which will be helpful to you. If I have not fully addressed your questions or if you have any follow up questions, or if I have misinterpreted your questions in any way, please do not rate me yet, but simply ask a follow up question without rating so I can provide you with a fully satisfactory answer. If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service with 3, 4, or 5 faces/stars so I can receive credit for helping you today. I thank you in advance for taking the time to provide me a positive rating!

Customer: replied 3 years ago.

Just to clarify... operating agreement should (loosely) read or be between which option:


Option A: This is an agreement between XXXXX XXXXX and Pete Smith

Option B: This is an agreement between XXXXX XXXXX and Smith Enterprises LLC

Option C: This is an agreement between Jones Enterprises LLC and Smith Enterprises LLC



I would suggest Option A. The LLC is already a limited liability entity so you don't need any further insulation from liability.
Richard and other Business Law Specialists are ready to help you
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!
Thank you also for the generous bonus! I appreciate your kindness!

Related Business Law Questions