I want to raise money for my business and specifically bring on partners who are willing to invest in the company. How should I structure the business to protect myself and be “fair” to myself and potentially 3 partners?
In determining what type of business entity is most suitable for you and your partners, I would really need more information as there are a number of complex issues involved depending upon the facts of your business and personal situation. With that said, most businesses in Massachusetts in which there are multiple “owners” are structured as either partnerships, limited liability partnerships (“LLPs”), corporations, or limited liability corporations (“LLCs”). A partnership will not protect your personal assets, while the other type of entities will protect your personal assets and limit the owners exposure to their investment in the business. In all likelihood, you would want to structure your business as either an LLP, an LLC or as a corporation to limit your personal liability. It sounds like your partners will be investors who provide capital but will not be involved in the day to day operations of the business. These types of partners are known as “silent partners”. No matter what type of entity you choose, you will want to make sure that you have an agreement which outlines the specific roles of each partner and whether or not they will be participating in the actual day to day operations of the business. Silent partners are typically entitled to claim a portion of the company’s profits or losses up the amount of their initial investment. You will need to have a written agreement with your partners outlining a “fair” distribution of these profits and losses.
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