I would like to set up an LLC within which my partners and I will invest in various startups. We may not always have equal contributions or returns though and I want to see if anyone's done this before and how it fits in with section 704 requirements for allocating income to partners. For example, let's say there are 3 partners. Each invests $10k in Company A, each has a 33% economic interest in the LLC at that point. 6 months later, another investment opportunity comes up, and Partner 1 has $20k that he'd like to invest, while Partners 2 and 3 only want to put $5k into that deal. So now Partner 1 has contributed $30k while Partner 2 and 3 have each contributed $15k. Based on contributions, without a partnership agreement the profit and losses on the investments should now go 50% to Partner 1 and 25% to each of the other 2 Partners. Since we're dealing with different investments here though, what we'd like to do is maintain separate capital accounts for each investment, so that if in this example Company A is a huge hit and returns $300k to the LLC, while Company B is only a modest success and returns $60k, each of the Partners would receive $100k on the Company A investment, and Partner 1 would receive $30k and P2/P3 would each receive $15k in accordance with their contributions to each particular investment. My assumption is that by specifying this arrangement in an operating agreement at the time of LLC formation, since there appears to me to be real economic substance to this distribution scheme, and maintaining the appropriate capital accounts for each Partner, the IRS should allow this arrangement. Does anyone have any experience with this sort of structure?
