I am just curious I have an investor telling me that he does not have to be on the LLC. He said I can own 100 percent of the LLC, but he would just be on the oprating agreement. I have never heard of this before. He said we can still distribute profits to him. And that it's all in the operating agreement which is separate from the LLC? By the way there is a reason he cannot be a member of the LLC. He has to stay confidential. But somehow he is saying this will work just fine. I never knew that and is this true?
Laws regarding LLCs vary based on the state the LLC is registered in. Contact an attorney in your state.
I don't see how you can distribute profits to someone who is not a member of the LLC. You can agree to pay someone a percentage of your LLC's profits by agreement. Bonuses to key employees often take that form. But even though the payments to a key employee are measured by the profits of the LLC, the are NOT distributions of profits. They are simply compensation based on profits. Consult with a lawyer in your state.
I don't get this. Seems like they are opposite positions. Why can't an LLC make an agreement, even in the operating agreement, that a certain investor is entitled to a percentage of profits? I do not see why you can't do it. In exchange for a certain investment he is entitled to a certain percentage of profits. I see no reason that can't be in the operating agreement and he not be a member of an LLC or in a separate agreement between him and the LLC. In any event, you want a lawyer in your area to draft the agreement so it does what you want it to do. You can usually contact your state bar for a referral to a qualified attorney - usually they will offer an initial meeting at minimal or no cost.