We are often asked how to bring a new investor into an LLC in San Diego or Southern California. This can be a challenge, but you should be able to find the balance between maintaining control of your company and attracting the investment you need to grow.
The Two Primary Ways to Infuse Capital in Your LLC
Basically, there are two primary ways to attract operating capital: offer an equity position or incur debt. The right decision may be to consider a loan or a line of credit for the business. Interest rates have been coming down again and this option allows you to maintain complete control over decision making.
What does it mean to offer an equity position? If you selected an LLC as your corporate entity you can add an individual or even another corporate entity as a member in your LLC by offering an equity position in the LLC itself.
An LLC may not be able to own another corporate entity, however, an S Corporation (for example) can be a member in an LLC. There are very specific legal and tax issues associated with these scenarios, however, there are many ways to consider an infusion of capital in an LLC.
The central issues surrounding the strategy of offering an equity position are the percentage of voting interest or security in the form of the membership interest which will be exchanged for the capital investment. People and entities who invest in LLCs and corporations will usually want a say in how the business is run, and this must be negotiated and included in any resulting modifications to the corporate documents including the operating agreement or associated contracts.
Bring a New Investor into an LLC with a Private Equity Offering
You should be able to bring a new investor into an LLC with a private equity offer. A “private equity” offering allows you to offer a portion of your company in exchange for operating capital. There are complex federal and state laws that govern these types of transactions, and you do not want to find yourself in the midst of securities allegations that can result in a prison term. You simply want to make sure you do not give up control of your company, and that investors are fairly compensated for the risk they are undertaking.
You should also consider strategies for buying back that portion of the company when performance increases or profitability improves.
The San Diego business attorneys at the Watkins firm can help you to understand the financial and business issues associated with how to bring new investor into an LLC in San Diego or Southern California legally, and without relinquishing too much control. We invite you to review our podcast as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
