Business Law

Ask a Business Lawyer. Get Business Law Questions Answered ASAP.

Ask a Lawyer,
Get an Answer ASAP!

Business Law

We are a group of consultants who are looking at ways to pool

Customer Question
marketing and administation expenses, but...
We are a group of consultants who are looking at ways to pool marketing and administation expenses, but not billing revenues. Therefore, we are not considering a traditional partnership where revenues and costs are combined under the new entity. Instead, we thought we might set up an entity (an LLC? S corp?), that would incur marketing and administration expenses on behalf of all the members. The members would all agree to pay their allocation of those costs. If we set this up as an LLC, then there would be no income, only expenses flowing to the members. Is this possible? What pitfalls do you see?
Submitted: 7 years ago.Category: Business Law
Show More
Show Less
Ask Your Own Business Law Question
Answered in 23 minutes by:
2/4/2010
Business Lawyer: wallstreetesq., Attorney replied 7 years ago
wallstreetesq.
wallstreetesq., Attorney
Category: Business Law
Satisfied Customers: 17,253
Experience: 10 years, Corp litigation, Of Counsel to several global and nationwide corporation
Verified

An LLC would be a good idea, and the consultants would pay a monthly fee to the LLC and the the LLC would pay each shareholder for their expenses. The problem I see is who is going to administer the expenses, and what role does each contractor play in the LLC.

 

If you set up an LLC, each contractor should be paid as a contractor from the LLC, through a 1099.

Ask Your Own Business Law Question
Customer reply replied 7 years ago

Your answer was not very helpful, which is why I did not accept it. From the way you phrased the anwer, I suspect that you didn't understand the structure. I will try to clarify and ask my question another way.

 

Several independent consultants want to gain the benefits of working in a larger group (greater breadth of offerings to customers, cross-marketing opportunities, and to share marketing and administration costs). Each of the consultants is now a sole proprietorship or an LLC. We want to jointly create another company, of which we 1) we all would be owners and 2) under which we all would be the consultants offering services. We have been thinking of this as a consulting consortium, perhaps like a co-op or guild. We do not envision at this time a structure where only some of us would be owners, and the rest contractors. Everyone will be both an owner of the new entity and a consultant providing services to clients under the new entity. Please note, the consulting services are not provided to the new entity. The consulting services are provided to other third parties, marketed under the name of the new entity.

 

As I tried to explain above, we do not want to combine our revenue streams, but keep those flowing directly to our own companies. Therefore, the new entity under which we would jointly market would only have expenses and no revenues. The new entity would allocate costs back to each of us member (consultants) per the terms of an Operating Agreement. We also would have a board or decision-making committee to approve types of expenditures and annual budget, with maybe one of us acting as a managing partner to act on behalf of the LLC. We would likely hire a full or part-time manager, and perhaps outsource certain services like tax preparation and advertising.

 

When I asked about pitfalls, I was wondering about tax issues and liability in particular. All of us will want to be able to off-set the costs of the new entity against the revenues that we make independently- is this possible. And what thought do you see around liability with this structure? are there any other ideas?

 

If this is not in your area of experience, please defer this to another expert. Thanks!

 

 

 

 

Business Lawyer: wallstreetesq., Attorney replied 7 years ago

I understood the question, what I am suggesting is this:

 

if you create an llc named "Contractor group" and all shareholders put in $1000 each for everyones administration expenses, each shareholder could deduct from his taxes his expenses as it relates to the LLC. Each shareholder would wrok independently from the LLC and receive income on their own company, nothing goes into the LLC.

 

An LLC, allows each member to deduct expenses, profits and losses of the LLC on their own company.

 

I have created numerous of these types of structures, the tax benefits because it is an LLC are similar to an S corp., as each shareholder can deduct the moneis put into the LLC and taken out on their own income tax return.

 

My only issue is who will be in charge of distribution out of the LLC, are you going to allow each shareholder to be able to have access to the funds of the entire LLC? That is my issue.

Ask Your Own Business Law Question
Customer reply replied 7 years ago

Instead of letting individual members control the distribution of funds, we would agree to establish an operating committee, who would manage the funds of the LLC at a high level. For example, after each member put in funds, there would then be operating funds for the new LLC. The spending of those funds would be set by the operating committee- a annual buget would be establishd as well as the spending authority level for the business manager. It may also be necessary for the operating committee to appoint one of its own to act as a general manager ("Managing Partner"), to give more specific direction to the business manager. We would likely agree on a fee to be paid to the person from the operating committee, who took this role. So the governance would be: Board >>> Operating committee>>> managing partner >>> business manager.

 

Any thoughts on liability? [note, I will be accepting your advice on the next round, but wanted to reply to your note]

Business Lawyer: wallstreetesq., Attorney replied 7 years ago

That would seem fair, however, you will need a very detailed and explicit operating agreement, on how and when distributions are made, the elections of members and the general manager, the exact roles and duties of the general manager, also what the process is to add new members and how to remove members.

 

The framework is their, but future problems always arise, especially when one contractor beleives that funds should be distributed one way and others decide against that person, a natural conflict arises.

wallstreetesq.
wallstreetesq., Attorney
Category: Business Law
Satisfied Customers: 17,253
Experience: 10 years, Corp litigation, Of Counsel to several global and nationwide corporation
Verified
wallstreetesq. and 87 other Business Law Specialists are ready to help you
Ask your own question now
Ask wallstreetesq. Your Own Question
wallstreetesq.
wallstreetesq.
wallstreetesq., Attorney
Category: Business Law
Satisfied Customers: 17,253
17,253 Satisfied Customers
Experience: 10 years, Corp litigation, Of Counsel to several global and nationwide corporation

wallstreetesq. is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises!

Gary B.Edmond, OK

My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer.

EricRedwood City, CA

I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight.

MichaelWichita, KS

PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent.

Three H.Houston, TX

Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!!

ElaineAtlanta, GA

It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem.

TonyApopka, FL

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

< Previous | Next >

Meet the Experts:

Infolawyer

Infolawyer

Attorney

1,851 satisfied customers

Experienced lawyer

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

1,611 satisfied customers

Run my own successful business/contract law practice.

MShore Law

MShore Law

Attorney

1,233 satisfied customers

Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements

RGMacEsq

RGMacEsq

Attorney

751 satisfied customers

Licensed Texas General Practice Attorney

Barrister

Barrister

Attorney

646 satisfied customers

17 years practicing attorney, JD, BA, MBA

Ely

Ely

Attorney

577 satisfied customers

Counselor at Law.

J.Hazelbaker

J.Hazelbaker

Attorney

393 satisfied customers

Experienced and trained in the area of business law.

< Previous | Next >

Related Business Law Questions
When a partnership owns a business and one of the partners
When a partnership owns a business and one of the partners works in the business is that partner considered an employee?… read more
LegalGems
LegalGems
Juris Doctorate
10,718 satisfied customers
I am filing a new business LLC in Texas. I just did an
I am filing a new business LLC in Texas. I just did an assumed name search through the Texas Secretary of State website and it has not been taken. What steps do I need to create this entity?… read more
TaxAttorneytoHelp
TaxAttorneytoHelp
Owner
Doctoral Degree
2,542 satisfied customers
I have a business partnership, and we I have agreed to not
I have a business partnership, and we I have agreed to not do external business in the area where our partnership is doing business. As our partnership produces products, they could easily create new … read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
My business is registered in Delaware as an LLC with a
Hi Pearl, my business is registered in Delaware as an LLC with a partner. My partner is no longer with the company. I would like to move the business to PA where I live. I am also changing the name of… read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
1,003 satisfied customers
I need help with a business partnership dissolution. I can
I need help with a business partnership dissolution. I can give a detailed account of what I am asking on this or should I wait until I am connected with a lawyer?… read more
DrakeLAW
DrakeLAW
Juris Doctorate
984 satisfied customers
The 60% business owner to an LLC with no articles of
the 60% business owner to an LLC with no articles of organization, has done things that makes all of us want to separate. however the 40% owners hold all MHIC licenses. Can the 60% just move the compa… read more
Infolawyer
Infolawyer
Attorney
Doctoral Degree
1,851 satisfied customers
I want to create an operating agreement for an existing LLC
I want to create an operating agreement for an existing LLC in Ketchikan, Alaska. This LLC is principally involved in cultivating cannabis and manufacturing cannabis products. This LLC is a legal and … read more
WiseOwl58
WiseOwl58
JD Honors Graduate
3,720 satisfied customers
I am the 20% owner of an LLC partnership and my partner
I am the 20% owner of an LLC partnership and my partner (super majority) has not paid me for work done in 12 weeks. Our business agreement states that a member can resign with written notice but I wan… read more
KLAW
KLAW
Juris Doctorate
1,770 satisfied customers
I have a LLC business in the state of Texas. It is currently
I have a LLC business in the state of Texas. It is currently a sole proprioter. If I want to add 2 partners do I need to change it to a corporation? Or can I leave as is and just generate an agreement… read more
Ray
Ray
Lawyer
Doctoral Degree
30,899 satisfied customers
If I start a Corp with a few shareholders and then form an
If I start a Corp with a few shareholders and then form an LLC with the corp as a member with another person as the other member, will the corp have liability protection from lawsuits against the LLC … read more
KLAW
KLAW
Juris Doctorate
1,770 satisfied customers
I am in a Partnership LLC in PA and my business partner has
I am in a Partnership LLC in PA and my business partner has never paid me her share of the initial purchase of inventory as I paid for it on my personal credit card. Since she has never paid if it her… read more
LegalGems
LegalGems
Juris Doctorate
10,718 satisfied customers
I'd like to look into opening an business account for an LLC
Second opinion] I'd like to look into opening an business account for an LLC with a member that's currently incarcerated... and a personal account for the person that's incarcerated. My guess is a tru… read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,698 satisfied customers
I have an existing TX LLC, doing business in CA. This LLC
Hello. I have an existing TX LLC, doing business in CA. This LLC will generate income from all over the world. I am going to register the TX LLC as a foreign LLC doing business in CA. At the same time… read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
1,003 satisfied customers
Converting my llc business to a c corporation and looking
Converting my llc business to a c corporation and looking for a lawyer to sign the paperwork … read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,698 satisfied customers
Is an LLC operating agreement between 4 members valid if
Is an LLC operating agreement between 4 members valid if only 3 members signed it ? … read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
1,003 satisfied customers
I have a partnership with a business partner. We sell goods
Hello. I have a partnership with a business partner. We sell goods online and formed an S corp. We both have put equal amounts of investment and we have spent somewhat close to the same amount of time… read more
Ray
Ray
Lawyer
Doctoral Degree
30,899 satisfied customers
I am covered under an LLC operating agreement with a
I am covered under an LLC operating agreement with a noncompete clause. I have been told in an email (by the managing partner) that I am no longer a member due to a freeze-out merger but I have not se… read more
Ely
Ely
Attorney
Juris Doctor
577 satisfied customers
My LLC in does not have an Operating Agreement and 2 of the
My LLC in Virginia does not have an Operating Agreement and 2 of the members would like to voluntarily withdraw leaving myself and 1 other member with the LLC. Do we need an Operating agreement before… read more
LawGuy
LawGuy
Juris Doctor
123 satisfied customers

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

Show MoreShow Less

Ask Your Question

x