Businesses need capital to fuel growth. That capital can come from debt or equity. Most small businesses pursue loans from traditional financing sources such as banks, credit unions, home equity line providers. Small business owners also could use equity from investors. If you structured your business as a limited liability company, you can bring in investors – individuals, corporations and partnerships – to raise capital for your business.
The LLC Structure
An LLC is governed by rules in the state in which it was created. Unlike corporations, these companies are not governed by federal regulations that regulate ownership, boards, directors and officer requirements. Instead, each state imbues an LLC's operating agreement with significant decision-making guidance. The operating agreement is the agreement that governs how the LLC is managed and run, who can own membership interests and the existence period. Hence, an LLC has more structural flexibility than corporations.
Advertisem*nt
Article continues below this ad
Permitted Members
LLC owners have a membership interest in the LLC and are referred to as members. State laws permit LLC members to be individuals, corporations, partnerships and other LLCs. To establish an LLC, founders or their agent must file articles of organization with the secretary of state. The articles of organization list all the current members and typically designate if the member is a person or an organization.
Adding a New Individual Member
If you have already lined up an individual as an investor in your company before you officially formed your LLC, then you would simply add that person's name to your articles of organization. If you solicit investment after you have organized and are operating as an LLC, then you will need to follow the rules in your state regarding notice of new members. Many states, like Texas, mandate that you amend your articles of organization to include any changes, additions or deletions in your members. Other states require you to file an annual update listing the current members.
Advertisem*nt
Article continues below this ad
Operating Agreement
If you bring on individuals as investors in your LLC, craft a well-thought-out operating agreement, or modify your existing one, to cover a number of what-if scenarios. Your operating agreement is the document that addresses a number of issues. You want to ensure that your business continues to run smoothly with the money brought in from the new individual investor. If you do not clarify in advance, you could subject your company to infighting regarding the sale of an ownership stake or interest, the profit distribution schedule, management control and strategic focus.
