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I have a single member LLC and a friend and I are developing an app together. We will put the app on the Google Play store and we want to split the money 50/50.

I'm wondering what the best way to do this is? I'd prefer not to add this person as a member of the LLC or employee. I'm wondering if I can pay him every month and have it be an expense.

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    Sure, and give him a 1099-MISC at the end of the year. Your friend might think you're turning him into an employee, though, so be sure to have a development agreement which states that this arrangement is just for billing purposes and that he still owns 50% of the app.
    – RonJohn
    Jun 27, 2019 at 2:40

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There are three ways for your friend to be involved:

  • owner
  • employee
  • independent contractor

It sounds like your friend is actually half owner but you want to treat him as an independent contractor to avoid dealing with legal formalities. There are two problems with this:

  1. Your arrangement would be, in a sense, a lie and doesn't represent what is actually going on. I'm not sure where this would come back to bite you, but one place could be filing taxes. It would be especially messy if you ever wanted to sell your app to someone else (capital gains and stuff like that).
  2. Your friend has to completely trust you. You could stop paying him and he would have no legal recourse other than to argue that the original arrangement was illegal. Not a good position to be in.

Note that an independent contractor has legal requirements. Whether someone is an employee or an independent contractor is not something that you can just choose. You have to meet certain IRS requirements to be an independent contractor.

In sum, you could probably get away with what you propose, but if your app ever makes real money you'll have a legal mess to deal with.

If you want to avoid formalities then don't use an LLC. If the Play store requires a company or if you need an LLC for other reasons, then I recommend creating a two-member LLC and doing it right.

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