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So I'm trying to figure out how to draw up my Operating Agreement for my single owner LLC, but I am open to a future partnership, so I have to set it up in such a way to keep that option open, and I ran into a pretty big problem, when initially funding the LLC directly with domains, as opposed to capital for the LLC to purchase the domains afterwards. If a partner also wants to do the same, things get particularly sticky.
Ok typically when you provide "assets" to a company you put in the fair market value(FMV). But this is tricky with domains, especially newer purchases, so in this case, the fair and simple thing to do would be to evaluate everything at wholesale purchase price, and not FMV, and simply sticking to cost of goods/wholesale price inventory structure. This seems to be the correct way, right? My tax accountant was also agreeing with me when initially only thinking of a single owner LLC.
Well not so fast!
Things change really fast when you consider partnering up with another domainer with an inventory of his own. Here comes the problem if in the future I would want to bring in a partner, who also wants to combine their domains to grow it into a larger business.
For simplicity's sake that really drives home the point, let's just say my future partner only happens to have 5 3L .coms he bought in 1990s for $50. I highly doubt he or she is going to be happy with my set up where now they just contributed $50 worth of domains at wholesale price to my LLC. Clearly, they would very much insist on their 3L .coms being evaluated at FMV and their % share of the company should be based on that. And I happen to agree.
But now it's a situation where I'm screwing myself over. If among the large volume of domains I contributed I end up with a few domains that knock it out of the park, or some significantly evaluate, I am now screwing myself over for evaluating all of my initial domains only at wholesale value and offering them up as initial contribution at wholesale value. Doesn't seem fair for one partner's domains to be evaluated at wholesale value and another at FMV anymore than it's fair for someone's domains from back in the 1990s to be evaluated at original purchase price.
How do you even go about navigating this problem?
Ok typically when you provide "assets" to a company you put in the fair market value(FMV). But this is tricky with domains, especially newer purchases, so in this case, the fair and simple thing to do would be to evaluate everything at wholesale purchase price, and not FMV, and simply sticking to cost of goods/wholesale price inventory structure. This seems to be the correct way, right? My tax accountant was also agreeing with me when initially only thinking of a single owner LLC.
Well not so fast!
Things change really fast when you consider partnering up with another domainer with an inventory of his own. Here comes the problem if in the future I would want to bring in a partner, who also wants to combine their domains to grow it into a larger business.
For simplicity's sake that really drives home the point, let's just say my future partner only happens to have 5 3L .coms he bought in 1990s for $50. I highly doubt he or she is going to be happy with my set up where now they just contributed $50 worth of domains at wholesale price to my LLC. Clearly, they would very much insist on their 3L .coms being evaluated at FMV and their % share of the company should be based on that. And I happen to agree.
But now it's a situation where I'm screwing myself over. If among the large volume of domains I contributed I end up with a few domains that knock it out of the park, or some significantly evaluate, I am now screwing myself over for evaluating all of my initial domains only at wholesale value and offering them up as initial contribution at wholesale value. Doesn't seem fair for one partner's domains to be evaluated at wholesale value and another at FMV anymore than it's fair for someone's domains from back in the 1990s to be evaluated at original purchase price.
How do you even go about navigating this problem?
