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I need to create a two member LLC.

Initially the LLC will need to be fully controlled by one person, but in the future control will have to change to be 50/50.

What is the easiest / safest way to accomplish this?

Make one member a 10% owner and the other 90% and then shift to 50/50?

Or do 50/50 ownership at the start and use an operating agreement that specifies 90/10 control and then file a new one to 50/50?

Both partners are happy signing any type of updated operating agreement or form to change ownership from 90/10 to 50/50. Trying to figure out which method is easier.

Thanks in advance!

newUserNameHere
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2 Answers2

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First - do it all with an operating agreement in writing; always - no exceptions!

Second - what you are describing in fairly simple for any competent lawyer to draft. The voting section of the operating agreement needs to include a provision stating something to the effect that until a Trigger Event occurs, Big Member will have 90% of the voting power of all membership interests; following the Trigger Event, Big Member and Little Member (assuming no other members join the LLC in the interim) will each own 50% of the voting power. The operating agreement (including this provision) is executed at the inception of the LLC, and will be self-executing, that is - when the trigger Event occurs, voting power should automatically shift without the need for any additional action.

Have your lawyer make sure there's no hitch in the applicable state LLC law; that equity interests don't shift on the Trigger Event (that would cause tax problems) and, of course, don't forget to (very clearly) define the Trigger Event....

Jack Fleeting
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If the company is owned 90% by one person, then that person has the power to prevent any change.

The only way you can do this is to have a cast iron contract between the two owners specifying that A will sell 40% of the LLC ownership to B for a fixed price X whenever B requests this.

gnasher729
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