Legal Question in Business Law in California

Josh,

Unfortunately, I think your question is a little too detailed, and would require too much work, for it to qualify as a free question. I hope you find an experienced attorney to sufficiently answer this question, but I wouldn't expect it.

Best wishes,

Shanen

Josh,

Lots of issues arise under your proposed arrangement. All can be resolved with various agreements between all the parties, including indemnification agreements.

It might be best to have the board of the LLC agree to open a wholly owned subsidiary that includes the business that you are creating. That way, you can be ensured to receive the 50% profit share and have no liability or responsibility for the other businesses.

This wil also still allow his original LLC to show the cash flow that he desires.

If you would like to discuss formation of these various agreements, please feel free to contact me through one of my websites, most notably for your situation is RulesOfEmployment.com.

Scott

Josh, I am concerned for you regarding potential liability from the other websites regarding which you have no interest. I'd be curious to see how your deal with your friend is structured now and like to see you explore a range of potential vehicles to achieve your business goals while maintaining limited liability. Unfortunately, this forum is sufficient only to confirm your concerns are valid, your proposed plan has potential pitfalls, and that you really would benefit from legal counsel.

What you want to achieve can certainly be done. Maybe not in the way you think, but through a new LLC, to keep web site/business separate from any problems with the others he owns. Joining multiple companies together creates complexity in the paperwork, and in the consequences. If you're serious about getting legal help with this, feel free to contact me.

OK, four answers already, from four different lawyers. Here's a fifth answer from an entrepreneur who first became a lawyer ten years ago at the age of 59.

There is a body of thought, based upon street smarts, that says owning 49% of a closely-held business is about the same as owning 0%. The 51% owner, or group of owners connected by family or friendship ties, will out-vote you on everything, including your salary, title, office, secretary, company car, and dividends.

There is another body of thought that says owning a majority is unnecessary, because power-sharing and fairness can be assured through good contracts.

Eack point of view can be correct in different cases. Strongly-written contracts protecting a minority control position can work, if the overall enterprise is big enough so the threat of litigation to enforce rights is real. In smaller businesses, the majority owner will laugh at the threat of a suit because he/she/it will know you can't afford to litigate. On the other hand, there are some legal principles diluting the absolute autocratic power of a 50.00001% owner, or, for that matter, a 99.99999% owner.

In the long run, the best advice I can give is to choose your co-owners VERY carefully. Character, compatibility and subscription to similar codes of ethics are probably as important at majority control or strong contracts in the longer-run avoidance of getting screwed in a business co-ownership arrangement.

In reading this question and thinking about the arrangement being proposed to you, I am VERY apprehensive about the proposed terms, and I am suspicious that you are being set up for a very unhappy experience of being manipulated out of any control of your new, profitable business. My instinct is to advise setting up a new LLC (or S corporation) and writing an Operating Agreement and other agreements covering all sorts of contingenciesand deadlocks - how will "ties" in voting on major policies be resolved? (Hopefully not by the other guy's mom casting the deciding vote).

Don't re-make a mistake I've made.