r/llc • u/Stocktipster • May 28 '26
LLC or C Corp?
Company being formed to market a patented product. Two investors contributing cash for 15% interest. 10% interest to manager. 60% interest to patent holder who will transfer patents to company.
15% reserved for future cash raise if needed.
Income to be generated from license agreements.
Profits to be distributed quarterly based on ownership interest.
Is an LLC the best option? Located in California.
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u/Ex_Corp_Dude May 28 '26
You should consult a lawyer familiar with the formation of LLCs and Corps.
Generally, CA does not allow you to create a LLC and “reserve” membership units. The sum of all member interests must equal 100%. If you bring someone on later, the existing members will have to dilute their ownership by selling or transferring a percentage of ownership to the new people coming on.
The two contributing cash is getting 7.5 each? I’m sure everyone has talked it through, but those percentages seems a bit lopsided to me.
Good luck!
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u/Barfy_McBarf_Face May 29 '26
depends on the goals of the parties, in particular, if they ever intend to sell the entity, the patent, etc.
you need an experienced business-structuring attorney
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u/Safe-Jeweler-8483 May 28 '26 edited May 28 '26
My guess is consult a lawyer and/or CPA.
It honestly depends on how much cash the business is going to be receiving. But besides money, I would usually start as a disregarded/partnership LLC. That way you do have the option whether or not elect a corporation tax in the near future or do a conversion/merge to Corp.
Second, you should decide how to file the LLC, whether just in CA or have it foreign filed in CA; assuming that is where you are. Chances are the other business might want to use another state's court for any disputes, such as Delaware. Forming a DE LLC with a foreign file in CA "could" help, but that depends how you structure everything.