Q: Can an LLC pay back initial investment first and then change to a different equity structure after that point?
I'm trying to structure a new LLC where 50% interest is divided in proportion to capital contribution and 50% is split 45/5 in "sweat equity." I want to have the first 50% (capital contribution) to get 100% of the profit distributions and/or proceeds from company assets until the initial costs are recouped. After this point (investor break-even, should it occur), the 50/45/5 split would take over in perpetuity. Can this be done?
A: There are a lot of unknowns here. An attorney will need to review the articles of incorporation and bylaws before making any definitive statement. There are also a series of tax considerations that are beyond the scope of Justia's Q&A. I recommend that you contact a business or tax attorney.
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