my buddy and i are going to form an LLC for tax reasons and liablility purposes....and purchase the business...
we are going to offer the head mechanic the chance to buy into the business with sweat equity after the initial note is paid off....
my dilemma is this....
i DON't want the head mechanic to buy in to the LLC just the repair shop.....in the future the LLC may want to purchase other properties....i don't belive the head mechanic is the type i would want to get into multiple ventures with, but he does, however, deserve a piece of the shop we are curently buying....
is there a "standard provision" for this type of scenario?........
the idea is in 2 or 3 years after the original note is paid off. to allow the mechanice the opportunity to begin buying in.....i think that would be the best time to start the 2nd llc.....
You can also have the mechanic participate in the profits of the business through an employment agreement, and in the event of a sale he can participate in the sale price. Although that doesn't exactly give him ownership since he couldn't sell his interest free and clear like he could a % interest in the LLC.
I think what hoyalawya is referring to is something liek a phantom stock agreement or stock appreciation rights (SARs). In a nutshell, it's a cash bonus which is tied to the value of the stock. There's no actual ownership interest, but there's a financial incentive to make the company do well identical to if he owned a portion of the company.
Oversimplified: Suppose the company is worth $20/share. If it improves to $30/share, and he has 30 shares of SARs, he will get 30 * $10, or $300.