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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
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Experience:  Run my own successful business/contract law practice.
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What is the correct form of organization for a company with

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What is the correct form of organization for a company with two owners, one lives in IL, the other lives in Italy. The company is a web start-up that will be producing software. What is advantage of partnership agreement vs. LLC Operating agreement. Is it necessary to incorporate right away or can we just proceed with a partnership agreement? If we do go with an LLC, does it matter what state we register in? If we end up selling our software product to customers out of state, do we need to register with that state as a foreign LLC?
Thank you for your post and thank you for requesting me to assist you.

There is no one correct form as multiple forms may work well. What do you foresee for this organization, do you want to own it, potentially sell it at some point, how large do you expect it to get?
Customer: replied 4 years ago.

Thank you for your prompt reply.


I want to be 50/50 partners with my developer in Italy.


We're starting out with a shoestring budget, with mostly sweat equity, but we hope to sell it at some point if revenue reaches $10M+.


Will your partner ever come to the US or will he remain in Europe? Are you expecting to ever dilute your initial shares with others?
Customer: replied 4 years ago.
He will remain in Italy for the foreseeable future. Might possibly dilute in the future.

Thank you for your follow-up.

In that situation LLP is less favorable because an LLP is harder to dilute (essentially each time a new partner is added, the partnership has to be scrapped and restarted with new partners. An LLC is more flexible and still provides limited liability protection for both parties. It also allows creation if one or more of the parties is a foreign citizen, provided that at least the registered agent or other parties are US citizens.

It is not necessary to incorporate right away but it is wise because it then protects parties from the start, rather than potentially places into dispute what is a personal asset or creation, and what is actually owned by the LLC. In terms of where to register, each state has slightly different rules, tax structures, and protection for shareholders--it really depends on what you are seeking primarily. In terms of registering elsewhere, it is not necessary but if the LLC ends up doing a lot of business in one state or region, it may be wise to register there also as a foreign corporation for additional benefits.

Good luck.

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