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I am a web developer working on a business idea and "hired" someone to do all the designs for me. The designer I hired has an LLC, we both made a verbal agreement that the design work will be done in exchange for 10% of my idea.

I have a working prototype and the design is the only thing that's left to be done. I'm planning on incorporating in the near future, but that's still months away and the plan is to incorporate as an LLC.

My question is, how can we get past the verbal agreement and move onto a more formal one so once the business is up and running, this person owns 10% of it? Can this be formalized in some way without having to set up an LLC? Would a letter or email be enough proof if needed in the future as evidence in case any of the parties fails to deliver?

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    You should probably hire an attorney to handle this. Equity agreements are complex and have long-lasting impacts.
    – Glen Pierce
    May 23, 2018 at 4:01

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My question is, how can we get past the verbal agreement and move onto a more formal one

Write the agreement down on a piece of paper, then both of you sign and date the bottom, then you make a couple copies of the piece of paper so you both can keep a copy.

Then once there's an actual reason to formally and legally form the organization, and pay the associated costs and fees, you indicate the ownership distribution based on your piece of paper and any other amendments or agreements that have occurred since that piece of paper.

Right now, you have nothing and you've Tom Sawyer'd this other person to accept 10% of nothing in exchange for work. When you have something, you'll talk to an attorney and file some forms that will indicate contact information and directors and ownership etc. From my eyes your biggest liability right now is that nothing comes of this project, but this other person will claim some rights to some future project of yours that does bear fruit. This is why it's important to write agreements down. You have 10% ownership of X project paid. You have no claim to any prior or future project. That kind of thing. Or even better yet, X project agrees to license your work for 10% net profit share paid after priority creditors.

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You’re looking for an LLC Operating Agreement. This document defines how the company will be run, including how the equity is divided up and might be changed in the future.

It is probably in your best interest to properly set the company up legally, especially if you’re at all worried about claims to ownership in the future.

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  • This answer is not complete; there are many different methods of achieving what the OP has asked, and in all cases a lawyer should be involved due to the permanence of this. A good answer would need to at least mention these points.
    – Grade 'Eh' Bacon
    May 24, 2018 at 16:09

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