The following two paragraphs will be part of the Articles of Organization of an LLC. Is item 2 legally allowed within an LLC?

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1. Licensed in MI

   

   Donald LawrencePro

   Lansing Estate Planning Attorney

   Contributor Level 12

   

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   Answered June 22, 2011 10:55. The share of the company (25% each) represents the ownership interest in the equity of the LLC. That equity is the net of the assets of the LLC after it has paid its operating expenses, contractual obligations and taxes. If there is no consideration paid into the LLC in exchange for the ownership interest (equity), the share has no value beyond having a vote in determining what actions should be undertaken by the LLC.
   
   Essentially, this is what you are planning with the idea of paying each owner flat hourly rate for services which will be less than what is billed for the work to the customer. However, you need to realize that while that may work if all are working effectively (producing value for a paying customer), there may be non-revenue producing functions that some owners perform that are important to the profitability of the LLC in general and other revenue producing functions that are actually productive of cash flow.
   
   In answer to your question in point 2, there is nothing that prohibits this type of provision in the articles of a Michigan LLC but as a practical matter, there has to be a more detailed agreement on the nature of the services to be provided, who is to provide them and whether revenue producing services are the same as non-revenue producing services in counting for the equal distribution based on ownership. In most instances, the owners of a stock entity contribute to the capital of the organization and gain voting in proportion thereto.

   Donald B. Lawrence, Jr. (P16463)* THE HUBBARD LAW FIRM, P.C.* DID 517-886-7115 Fax: 517-886-7129 Email:... moreDonald B. Lawrence, Jr. (P16463)* THE HUBBARD LAW FIRM, P.C.* DID 517-886-7115 Fax: 517-886-7129 Email: dlawrence@hubbardlaw.com The information provided does not constitute legal advice and no attorney client relationship exists based upon this response. Unless specifically noted to the contrary, information refers to Michigan law. Prior to taking action, you should consult directly with an attorney for specific advice based on a full factual disclosure about your own legal situation. This information is provided for your personal use and may be reproduced for non-commercial distribution. All copies must include the following copyright notice: Copyright © 2011 THE HUBBARD LAW FIRM, P.C. THE HUBBARD LAW FIRM, P.C.* 5801 W. Michigan Avenue, Lansing, MI 48917 Phone: 517-886-7176; Fax: 517-886-1080 *AV Peer Rated, Martindale-Hubbell® Please consider the environment before printing this response less

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2. Licensed in MI

   

   Steven Heisler

   Marine City Divorce / Separation Lawyer

   Contributor Level 13

   Answered June 22, 2011 07:05. Could not agree more with Kevin. I have seen time and time again, where people try to create a company without an attorney to save a few hundred, and end up paying thousands latter to clean up the mess.
   
   Steven Heisler, Esq.
   http://www.heisler.org
   800 466 0000

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3. 

   Bryant Martin

   Santa Barbara Business Attorney

   Contributor Level 18

   Answered June 21, 2011 18:45. What if the profits are not adequate to pay the hourly rate? You must cover that contingency. One of the advantages of a LLC over an S corp under the tax Code is that you can have special allocation of profits such as this rather than a lockstep percentage division of them. So this is doable, but I don’t think it belongs in the Articles (which are of public record), but rather in the Operating Agmt. You do have one don’t you? If not, go back to the drawing board and hire a lawyer to prepare one for you. Be sure it covers the three D’s: Death, Disability and Disagreement. You would be amazed at how may LLC’s I see either without an OA or with a wholly inadequate one. If you don’t do it, your next AVVO question will be “Joe is cheating on his time keeping and not doing any work; how can I get rid of him?” The answer will be “You can’t, unless your OA authorizes it.” The members must have the right and power to expel any member who is not pulling his weight, without the LLC having to make a heavy payment to him.

   DISCLAIMER—This answer is for informational purposes only under the AVVO system, its terms and conditions. It is... moreDISCLAIMER—This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com less

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4. 

   Kevin Carmichael

   Naples Limited Liability Company (LLC) Lawyer

   Contributor Level 10

   Answered June 22, 2011 06:51. To compliment with what Bryant has said, there are both property and tax consequences to each aspect of the allocation and distrbution of the cash flow of a business found in an operating agreement. When you own a business, merely showing up for work is not a guaranty you will be paid. In your example you state that the members will be paid out of profits. Well what are profits under your agreement? If the company is generating losses which is normal in the beginning stages of a start up and you are paying expenses from equity provided by members and/or loans from members or third parties, there are no profits. Under your facts no one will be paid until you at least break even. Is this really what you mean?
   
   Choose your words carefully. Its in your interest to hire an attorney.

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