Legal Question in Business Law in California

I strongly advise that you have a lawyer properly prepare your LLC operating agreement especially where you have multiple members.

You can do this but what you are really doing is gifting money to those members putting up less capital. There are better ways to structure this, such as a private agreement to transfer shares at a later date as the company demonstrates profits.

This is not something you should be negotiating on your own. I would consult a lawyer in private and discuss your objectives.

If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.

Kind regards,

Frank

www.LanternLegal.com

866-871-8655

[email protected]

DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

Actually, if the new LLC member receives an interest which is worth more than what he paid for it, he is most likely to have taxable income. Gifts are not usually the result of a transfer of an LLC interest to a non family member. This would also create a withholding requirement for the LLC. This creates a situation where the new member puts in cash, has a tax liability, and will have to find money to pay the income tax.

Keep in mind this is not just a capital account question. While capital accounts are a factor, the fair market value of the interest is the issue.

There are tools that can restrict the interest provided or otherwise delay taxation. These are rather complex decisions, and you need to understand them before you go forward. You may be interested to know that new regulations were recently issued to reflect the rules.

You need to seek counsel with tax knowledge and the ability to properly reflect the transaction in the operating agreement. You will also need to assure your accountant correctly reports the transsaction in the income tax returns.