Kelly Herron has agreed to invest $200,000 into an LLC with Michelle Moss and Dan Kim. Moss and Kim will not invest any money, but will provide effort and expertise to the LLC. Moss and Kim have...

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Kelly Herron has agreed to invest $200,000 into an LLC with Michelle Moss and Dan Kim. Moss and Kim will not invest any money, but will provide effort and expertise to the LLC. Moss and Kim have agreed that the net income of the LLC should be divided so that Herron is to receive a 10% preferred return on her capital investment prior to any remaining income being divided equally among the partners. In addition, Moss and Kim have suggested that the operating agreement be written so that all matters are settled by majority vote, with each partner having a one-third voting interest in the LLC.
If you were providing Kelly Herron counsel, what might you suggest in forming the final agreement?




Answered Same DayDec 22, 2021

Answer To: Kelly Herron has agreed to invest $200,000 into an LLC with Michelle Moss and Dan Kim. Moss and Kim...

David answered on Dec 22 2021
119 Votes
In case of partnerships, where the business is more service oriented, such as accounting, the
performance of this firm should be measured by the net income per partner. The other method
that can be used is revenue per employee. However, here the income needs to be divided not
only on the basis of services but also on the basis of amount invested. Since Kelly Herron has
invested the entire amount, she is to be paid an interest on capital balance. The 10% interest on
her capital investment is a fair share of income that she should receive.
I can suggest the following method of dividing partnership income. It will include
1. Interest on capital investments
2. Partner salary allowances
3. Any remaining amount of income can be divided equally.
Salary...
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