Scale Your LLC Without Giving Up Equity

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1. Feature: Scale Your LLC Without Giving Up Equity (4 min)

2. From the Archive:

   • Retention First: Build the System That Keeps Good Customers

   • What Businesses Should Consider Using a C Corp Instead of an LLC?

-TCoL

Missed our last feature article? Stop Making NDAs Awkward

Bringing friends, family, or even someone you don’t know well into your LLC can be a smart way to grow your business, access new skills, or expand your reach without giving up ownership. Whether you're looking to hire someone, collaborate on a project, or incentivize a non-member with a share of profits, there are several ways to involve others in your business while maintaining control.

Below are practical methods for doing this, from simplest to more complex.

Hire Them as an Employee

Hiring an employee is one of the most straightforward ways to involve someone in your LLC. Employees work for a salary or wage and often receive benefits or bonuses. This allows you to benefit from their skills and labor without offering them any ownership stake in the company.

When It Works Best:

Hiring as an employee is ideal when you need someone to fill a specific role within the business and you have the necessary cash flow.

Simplicity Level:

Simple – An employment offer letter is a standard document outlining job duties, compensation, and expectations. It’s easy to structure and doesn’t require much legal complexity.

Agreement Basics:

• Employment Offer: This outlines the job description, salary, benefits, and performance expectations.

• Job Classification: Clarifies whether the employee is full-time or part-time, etc.

For details how, read our previous article: The Most Important New-Hire Document.

While you’re at it, check out: Hiring in a Side Hustle World  

Hire Them as a Non-Employee Contractor or Consultant

Engaging a non-employee contractor or consultant is another option when you need specialized skills or help on a short-term project. Consultants and contractors are paid for their services, but they do not receive ownership in the LLC. This method is flexible, as you pay only for specific work performed.

When It Works Best:

This option is ideal if you need expert services for a limited time, whether it’s marketing, legal advice, or development, without the commitment of full-time employment.

Simplicity Level:

Simple – A contractor or consulting agreement is relatively simple to draft. You’ll define the work, compensation, and duration of the agreement, while also confirming they’re not an employee.

Agreement Basics:

• Consulting Agreement: Specifies the scope of work, deliverables, payment terms, and the duration of the contract.

• Non-Disclosure and Non-Compete Clauses: Optional clauses to protect sensitive business information.

For details how, read our previous article: How to Hire Subcontractors Without Getting Burned: 9 Golden Rules.

Limited-Time Joint Venture

A limited-time joint venture (JV) allows you to collaborate with another business or individual for a specific project, like bidding on a contract or launching a product. The non-member doesn't become part of your LLC but shares in the revenue or profits generated by the project.

When It Works Best:

A JV is a good fit when you want to team up with another business or individual who can offer complementary skills or resources but you don’t want to dilute ownership. It’s typically used for short-term ventures, where both parties benefit from the project without affecting the long-term structure of the LLC.

Simplicity Level:

Average Difficulty – While setting up a joint venture is not overly complex, it requires a clear agreement that details how profits will be shared, how decisions will be made, and how the venture will be managed. This agreement will need to be tailored to the specifics of the project or opportunity.

Agreement Basics:

• Joint Venture Agreement: Defines the purpose of the venture, responsibilities, and the distribution of profits.

• Profit or Revenue Sharing: Outlines how income from the venture will be split.

Revenue Share Agreement

A revenue share agreement involves compensating someone based on a percentage of your LLC’s profits or revenue, usually in exchange for their role in driving business. Unlike a joint venture, this share is tied to the ongoing success of the company, not just one project.

When It Works Best:

This method is ideal for individuals who help generate sales, secure clients, or increase revenue but don’t need to be part of the business ownership. It can be a useful way to incentivize people to grow your business while keeping full control.

Simplicity Level:

Average Difficulty – While not as complex as a joint venture, a revenue share agreement requires careful drafting to define how revenue will be tracked, how profits will be calculated, and the exact percentage or formula for payment. You'll need to ensure clarity to avoid misunderstandings down the line.

Agreement Basics:

• Revenue Share Agreement: Specifies the percentage of revenue or profits the non-member will receive, based on their contributions to the company.

• Payment Terms: Details how and when the share will be paid, including milestones or performance goals.

Strategic Partnerships or Licensing Agreements (Including Royalties)

Strategic partnerships or licensing agreements allow you to collaborate with another business or individual, sharing resources or intellectual property, without granting them ownership in your LLC. A royalty agreement may also be included, where they pay you a percentage or fixed dollar amount for using your intellectual property or products. Or, where you pay them a percentage or fixed dollar amount for their intellectual property or distribution experience or channels (think getting your BBQ on the shelf at Walmart). 

When It Works Best:

This approach is useful when the non-member or business offers valuable resources, technology, or intellectual property that your LLC can benefit from, but you don’t want to give up ownership. For example, licensing your technology to another company for a royalty is a great way to generate income while maintaining control of your assets.

Simplicity Level:

Complex – Licensing and strategic partnership agreements can be intricate, particularly when intellectual property is involved. There are more moving parts, such as royalty structures, usage rights, and legal protections.

Agreement Basics:

• Licensing or Partnership Agreement: Outlines how intellectual property or resources will be shared, and how compensation (such as royalties) will be handled.

• Royalty Payments: Specifies the percentage of sales or revenue that will be paid as royalties.

• Intellectual Property Clauses: Specifies how the intellectual property is to be used, protected, and sub-licensed to the ultimate buyers.

Sales/Marketing Agreement

A sales or marketing agreement compensates someone based on the leads, sales, or marketing results they bring in. This is a good arrangement when you want to expand your reach, but you don’t want to offer them ownership in the business. The non-member is incentivized to increase business but doesn’t have a say in company operations.

When It Works Best:

If you need someone to generate new clients or customers, perhaps through sales or marketing campaigns, a sales/marketing agreement can be a good fit. This is often used when you want someone to focus specifically on increasing business volume without taking on a more significant role in the LLC.

Simplicity Level:

Average Difficulty – This agreement is somewhat more involved than a simple contractor agreement, as it requires defining clear performance metrics and compensation structures. You'll also want to set clear expectations to ensure both parties are aligned on goals and brand usage.

Agreement Basics:

• Sales/Marketing Agreement: Defines the sales or marketing objectives, how compensation will be structured, and performance benchmarks.

• Commission Structure: Details how much the non-member will earn for each sale or lead generated.

• Appropriate Controls: You want a clear agreement regarding how they pitch your products, clear territorial limits, and controls to make sure that they don’t tell customers that they are employed by your company. Independent sales/distribution agreements need clear boundaries and rules.

Bottom Line

Involving others in your LLC without giving up ownership is a powerful way to access new skills, grow your business, and expand your reach. Each of the six methods, whether you’re hiring an employee, entering a joint venture, or establishing a revenue share agreement, offers different benefits.

By choosing the right approach for your situation and carefully drafting the appropriate agreements, you can protect your LLC’s ownership while still benefiting from the expertise or resources others bring to the table.

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