Figuring out the best way to start up a small company is not easy thing. My first business out of college (where I set up a theater company and low-budget film company) was an indie movie production company, and my partners and I decided to set up an LLC. We didn’t realize how new the form was in 1999, when our LLC was founded, and we were fortunate enough to find a lawyer who could guide us through the potential pitfalls of engaging in a joint venture.
New York State’s LLC Guide provides some insight into the benefits of a limited liability company: “The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are “members” rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company or any other legal entity.”
When you are in your twenties, and you’ve come up with a great idea with like-minded buddies, you don’t imagine that anything can go wrong. Luckily, our operating agreement provided a how-to for when disputes would arise among and between partners. And the New York LLC law, while new, provided us with “defaults” in the event our operating agreement was silent on specific matters.
We were so focused on allocation of revenue between investors and managers (which all three of us were at the time), that we didn’t consider the value we might place on providing resources other than money. For instance, profit on the managers’ side was shared evenly, but no incentive was attached to funds raised by individual managers. In other words, if one “partner” was to raise a significant amount of the investment, that “partner” would not get a “bonus.” Retrospectively, we should have taken full advantage of the flexibility of the LLC entity--income allocation of managers can be structured creatively.
We eventually went our separate ways, and dissolving the LLC was very simple. In fact, we created a successor LLC, of which I was the sole manager. My partners pursued their own ventures, and I continued my foray into film, video, and new media. We were young, and ultimately broke up our "business marriage" in the most civil of manners. I am sure that the flexibility of the LLC structure made the breakup as easy as it was.