It is common for investors to band together to form an LLC and get involved in various development projects. An important part of being in a partnership is to have a strong agreement in place that dictates the decisions the LLC makes. But sometimes investors will skimp on the details and put together an LLC agreement that does not fit the needs of the partnership in any way. Before you sign the LLC agreement that launches your new investment firm, you should attend to these details that will be a big part of the decision making process.
Distribution Of Proceeds
Before you and your partners even drive over to the lawyer’s office to draft the agreement, you need to sit down and determine how money will be distributed. It is not at all odd to have some partners put up more cash than the others to get the venture started, but it should never be assumed that everyone is on that same page. Before you sit in front of the lawyer to make up your agreement, you should make sure that everyone is in agreement on the distribution of proceeds.
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In an industry that moves at the pace that the real estate industry moves at, it is important to determine who will be making the decisions for your LLC. Is there going to be a managing partner in charge of decisions, or does everyone want a say?
A common arrangement for these kinds of investment companies is to have one person who is knowledgeable in real estate make the day to day decisions, and then require a majority vote on larger issues. You and your partners will have to work out a management structure for your LLC that gets everyone involved at a level where they are comfortable and competent.
Who will be authorized to sign agreements on behalf of the LLC? Will there be more than one signature required? If so, how many? You will need to determine who is going to sign everything form paychecks to vendor payments if you want your LLC to be successful.
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What will the operational responsibility be for each member of the LLC? This part of the agreement is critical because it will decide how the day to day operations will be run. By determining operational responsibility, you will also be locking partners into devoting a certain amount of time into the LLC on a regular basis. It is important to be realistic with this part of the agreement, and to be sure to get everyone’s input.
Your LLC may get off to a great start, but then everything grinds to a halt when one of the partners passes away. In any good business plan, succession planning is critical. When it comes to a business like real estate investing where making good decisions is part of the game, it is important for every partner to know what will happen if some kind of catastrophe occurs to any member of the group.
A real estate investment LLC firm can be exciting, but it is also a tremendous amount of responsibility. Before you start talking to a lawyer about an LLC, be sure that you and your partners know exactly what you expect from the business and from each other.