Advice.... what kind of contract??? at DVinfo.net

Adam Grunseth · March 26th, 2007, 11:42 AM

Ok, here is my situation. My girlfriends father invested some money to help me start my business. I didn't solicit this investment, it was entirely his idea and he insisted that I take it. So I accepted, and sat down, and figured the value of my labor and what I contributed to the business and what he contributed. The result was is contribution was worth about 8.5% of the total company- so in turn I would like to share with him 8.5% of the profits. We both agreed it would be good to have a contract saying this..... but I'm not sure what kind of contract fits the situation. My company is set up as a sole proprietership, and the only way I have found to give him a contract is to make him a partner and set things up as a limited liability partnership. However, I learned even in a limited liability partnership he may still have some liability if the business gets sued.

I am really not sure how to get this set up.... I do not want him to have to have any liability in the case the company gets sued, but at the same time I really do not want to set up a coorporation. Is there anything in between?

Steven Davis · March 26th, 2007, 12:13 PM

I would consult an attorney.

John Vincent · March 26th, 2007, 01:59 PM

Perhaps you should form a single-member LLC with your step-dad as the primary investor.

LLC's serve to protect the owners and managers from being sued individually for a business's mistakes - as do other business entities. It's primary diffrence is that is flexible company - you get the "pass-through" tax advantages of a partner-ship (w/o having to form a partnership, which have many problems IMHO), w/o having to have board of governers, et al.

But whatever the company's form, a person can still sue the the people who run the company if the facts are right - for instance, if the compnay intentionally was breaking the law and someone got hurt.

Suing a person who manages a company is called "piercing the corporate veil" and simply means that the court will allow a party to go after the company's manager's/board of directors. That said, piercing the veil is somewhat difficult.

It's even more difficult to sue a "money only" investor - the kind most commonly asscociated with LLC's. Typically, "members" of the LLC are investors who have no managerial responsibilities - they are simply investors, thus are expossed to virtually no liability, even if the "veil" is pierced.

This is only general advice - your business or state might have particular restrictions. But hopefully this will help search for an attorney - for a simple one person LLC, you shouldn't have to pay more than a grand to has this sort of document drawn up, esp from a younger lawyer... Good luck!

john
evilgeniusentertainment.com

March 26th, 2007, 11:42 AM	#1
Adam Grunseth Major Player Join Date: May 2005 Location: Eugene Oregon Posts: 393	Advice.... what kind of contract??? Ok, here is my situation. My girlfriends father invested some money to help me start my business. I didn't solicit this investment, it was entirely his idea and he insisted that I take it. So I accepted, and sat down, and figured the value of my labor and what I contributed to the business and what he contributed. The result was is contribution was worth about 8.5% of the total company- so in turn I would like to share with him 8.5% of the profits. We both agreed it would be good to have a contract saying this..... but I'm not sure what kind of contract fits the situation. My company is set up as a sole proprietership, and the only way I have found to give him a contract is to make him a partner and set things up as a limited liability partnership. However, I learned even in a limited liability partnership he may still have some liability if the business gets sued. I am really not sure how to get this set up.... I do not want him to have to have any liability in the case the company gets sued, but at the same time I really do not want to set up a coorporation. Is there anything in between?

March 26th, 2007, 12:13 PM	#2
Steven Davis Inner Circle Join Date: Jun 2004 Location: Richmond, VA Posts: 3,065	I would consult an attorney. __________________ What happens if I push the 'Red' button?

March 26th, 2007, 01:59 PM	#3
John Vincent Trustee Join Date: Sep 2005 Posts: 1,065	Perhaps you should form a single-member LLC with your step-dad as the primary investor. LLC's serve to protect the owners and managers from being sued individually for a business's mistakes - as do other business entities. It's primary diffrence is that is flexible company - you get the "pass-through" tax advantages of a partner-ship (w/o having to form a partnership, which have many problems IMHO), w/o having to have board of governers, et al. But whatever the company's form, a person can still sue the the people who run the company if the facts are right - for instance, if the compnay intentionally was breaking the law and someone got hurt. Suing a person who manages a company is called "piercing the corporate veil" and simply means that the court will allow a party to go after the company's manager's/board of directors. That said, piercing the veil is somewhat difficult. It's even more difficult to sue a "money only" investor - the kind most commonly asscociated with LLC's. Typically, "members" of the LLC are investors who have no managerial responsibilities - they are simply investors, thus are expossed to virtually no liability, even if the "veil" is pierced. This is only general advice - your business or state might have particular restrictions. But hopefully this will help search for an attorney - for a simple one person LLC, you shouldn't have to pay more than a grand to has this sort of document drawn up, esp from a younger lawyer... Good luck! john evilgeniusentertainment.com