Question
From: (redacted)
Sent: Sunday, April 4, 2004 8:25 AM
To: Verne,B. Michael
Subject: LLCControl
Mike, I have an LLC that is being formed with three owners, holding thefollowing LLC interests.
A - 49.5%
B - 46.5%
C - 4%.
Each of A, B and C arecontributing some contracts into the LLC. The profits of the LLC will beallocated with the contributor of a specific contract getting 75% of theprofits of that contract. The remaining 25% profit from each contract goes intothe general capital account, and then gets distributed in proportion to the LLCinterest holdings set out above. It is anticipated that under this formula, Awill get slightly less than 50% of the total profits of the LLC in the first 18months, which is the best available information. B and C would take smallerpercentages. It is also possible for additional contracts to be added at alater date, although there are none planned at this time. In addition, thecontributed contracts have different terms and renewals, so the"book" of contracts in the LLC may change over time, and at somepoint either A or B might obtain the right to 50% or more of the profits, butthat is far from certain and will depend on the contract performance andwhether the contracts are renewed, dropped, new ones are added, etc... Giventhat scenario, I think that we don't have a controlling person from the"percentage of profits" test.
As to dissolution, if the LLC isdissolved, the contract contributor will take back the contract (and relatedassets). Any other assets (including new contracts obtained by the LLC -- notcontributed by A, B or C) will be distributed in proportion to the LLC interestholdings set forth above. At the instant of formation, we can assume that ifthere were a windup at that time, A might have the right to 50% or more of theassets on dissolution (A and B are contributing most of the assets, and C getsits share mainly because of "sweat equity" it will need to devotethrough the life of the venture). However, as the venture continues over time,we don't know if anyone will have the right to 50% or more of the assets ondissolution. That will depend on whether various contracts contributed byinterest holders are still "in the venture" at that time, haveexpired, etc... In short, at any future ! time it could be A who gets 50%, Bwho gets 50%, or nobody who gets 50% on dissolution.
In this situation, I think I cantake the approach that the LLC is not anyone, so no filing is required for itsformation. Please let me know (email or phone, if you think I've missedanything with this analysis, or if you have questions.