How Can I Have Reverse Vesting in an LLC?
I recently received, via Quora, a private question about setting up an LLC membership interest (rather than shares of a corporation) with reverse vesting (see Rewarding Key Personnel: Restricted Stock or Options?). That question, and my answer, are reproduced below with minor editing.
Q. I am starting a company and forming as an LLC. My co-founder will received a reverse-vested membership percentage. I’ve found plenty of sample restricted stock agreements, but nothing for LLCs and memberships. Do you have any suggestions where I can find a sample agreement?
A. Sorry, I know of no such document. I believe there are two somewhat-related reasons why this is the case:
- Reverse vesting is common in a corporation, rare in an LLC.
- Whereas corporations have well-defined structures, LLCs can wander far afield in their Operating Agreements, meaning that one cannot expect to find and rely upon supposedly-standard language.
Please pardon my directness: You cannot do this properly on your own. If your objective in choosing an LLC is to save money, given the reverse-vesting requirement you probably will be better off with a corporation.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
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Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.