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Forming an LLC, but not sure how to structure profit sharing.

Trenton, NJ |

I'm forming an LLC with another person. We are writing computer software and have agreed that each product might have a different profit sharing arrangement. The first product might be 70% of my effort and 30% of his, the next might be 50/50, or 60/40 etc. Should the LLC be setup as 50/50 and then each product dealt with individually? Or will this become too confusing and is there a better way?

Attorney Answers 3


  1. You have a number of options, one thought would be to set up the LLC as a 50/50 partnership in terms of control of the LLC but provide that projects engaged in by the LLC will have the profits split per an agreed upon sharing ratio per an attached schedule that can be amended as new projects are added. One disadvantage of this structure is that a loss or lawsuit regarding one project can jeopardize the profits of all the other projects since they are operating under the same LLC umbrella. An alternative arrangement would be to have separate LLC's for each project that set forth the sharing ratio for that project and which insulate each project from the others. Both of these suggestions are subject to the assumption that tracking the expenses and income associated with each project is both possible and practical.

    Best of Luck.

    Ed Smeltzer

    NOTE: This answer was prepared for educational purposes only. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question.


  2. An LLC is a business form that does provide some advantages but does have some drawbacks.

    In the most basic and general terms an LLC features are that its members have limited liability for the entity's debts and obligations, similar to the status of shareholders in a corporation, and its income and losses are normally passed through to the owners as if it were a partnership.

    Using the written documentation you have is a good place to begin. Contact a local lawyer - many may give you a free consultation for an hour - to discuss your specifics. Far too many variables exist in the short post you wrote for any further observation by me. Many Tampa attorneys have information posted here on Avvo.

    You might find my Legal Guide helpful "How to Choose A Lawyer For You"

    http://www.avvo.com/legal-guides/ugc/how-to-choose-a-lawyer-for-you

    You might find my Legal Guide helpful " What Do I Tell My Lawyer"

    http://www.avvo.com/legal-guides/ugc/what-do-i-tell-my-lawyer

    No one can know what the record is in the case because online we cannot see your documents. You need a lawyer. Check with a lawyer in your locale to discuss more of the details.

    Good luck to you.

    NOTE: This answer is made available by the lawyer for educational purposes only. By using or participating in this site you understand that there is no attorney client privilege between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed professional attorney with whom you have established an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question.


  3. If you have some money and want to wade into it I would suggest a Delaware or Illinois seriess LLC.

    If you don't have a large budget to work with (or no budget) do a 50/50 LLC with special allocations for each project such that on project x you get 20% of the Profits and Losses and on project y you get 80% of P/L, and so on. The only disadvantage is your bookkeeping will be difficult and you'll have to figure out how much of the total expenses are allocated at the LLC level.

    Lastly, you could do a tiered partnership. But your accounting fees would probably eat up most of your profits.

    Series LLC is the answer tho'.

    Good luck.

    I am offering this information for educational purposes only. I am not your attorney. You should speak to a lawyer in your state.

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