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Home Q&A Forum LLC and capital structure?

Business

LLC Operating Agreement

California

Asked on Jun 1, 2023

LLC and capital structure?

I am the founder and owner of a small business that is in the process of transitioning to an LLC. I am interested in understanding the capital structure of an LLC and how it differs from that of a sole proprietorship. I am looking for advice on how to ensure that my business is properly capitalized and structured in order to maximize its potential for success.

1 Attorney answer

Answer

Business

California

Answered 397 days ago

Russell M.

ContractsCounsel verified

Business Lawyer
Licensed in California
Free Consultation

Well, putting aside the very important detail that an LLC offers limitation of liability and a sole proprietorship does not, the difference between a sole proprietorship and an LLC is that you can allocate the profits to others through membership interests. This means you can bring on one or more investors and allocate the capital appreciation, profit and cash flow to the investors with the same or different terms from your interest, and that you can share profits with employees through a "profits interest". There is a great deal of flexibility that you can use through a properly drafted operating agreement.

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