This is all very cool. But: don't operate a multi-partner company in any form, LLC or C-Corp, without formal vesting. Companies without vesting are rigged to explode if any member leaves.
Atlas C corporations with multiple founders have a vesting schedule built-in (4 year vesting; 1 year cliff), the market standard in Silicon Valley.
Vesting in an LLC is complicated:
Because an LLC is a partnership, there can be complicated consequences of someone stepping back from an operational role (like e.g. being a founder) but remaining an owner of the business. We didn't think it was appropriate to have a one-size-fits-all answer for this: some companies might choose to buy out the departing founder, some might choose to pay them dividends on an ongoing fashion, and some might not have financial bandwidth to pay dividends but might want them to participate in upside in the event of a future acquisition.
Conversely, adopting vesting establishes some fairly substantial tax consequences (83(b) elections, etc).
This is heavily dependent on facts-and-circumstances.
Vesting is more of an established concept, with off-the-shelf support throughout the ecosystem, for C corporations. For those who want it in an LLC, please speak to an attourney. You can still adopt it for your Stripe Atlas LLC, it just isn't built in to the default experience.
An LLC is not a partnership. (A limited liability partnership is an LLP.) An LLC is a distinct business structure with some similarities to a corporation, some to a partnership, and some unique features.
> Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless [...etc...]
(To grandparent comment: for what it's worth, I too find it highly confusing that "partnership" and "LLP" (vs LLC) are both terms and not as closely related as one might first suspect...)
The primary difference between an LLC and an LLP: an LLC must have at least one "general partner" who is fully liable for all of the LLP's debts in the event the LLP defaults.
Another major difference: until recently, law firms and accounting firms could be LLPs but not LLCs, due to malpractice liability concerns. Now that most bar associations and/or states require these firms to maintain malpractice insurance, many states allow law firms and accounting firms to be LLCs.
They are just as closely related as one might suspect: an LLP is a partnership where the partners enjoy limited liability.
An LLC is not a partnership, though multimember LLCs are, by default, treated like a partnership for federal income tax purposes.
(The LLC is a fairly new form of business entity originally created as a lower overhead alternative to the corporation that would provide a distinct entity for corporate joint ventures; the LLP is also fairly new, but [in its US form] it was formed to protect innocent members of professional firms from personal liability for actions of other members of the firms, and is in many jurisdictions restricted to professional firms.)
LPs and LLLPs make things even more fun, though.
[1] Edited to be more comprehensive.
The only LLC-specific wrinkle I think we ran into is that we had to spell out that vested equity wasn't equivalent to a pro-rata claim on profits or distributions. But that's like a a sentence or two.
Non-vesting Atlas LLCs are probably super useful for a bunch of different kinds of companies.
But I'll argue that a non-vesting structure is never appropriate for a multi-member startup.
I'm not picking on Atlas; lots of people DIY or even pay lawyers to put this stuff together and get it wrong. We got it wrong at Matasano. It was painful.
This brings up a very interesting issue under the Delaware Limited Liability Company Act, that is without an Operating Agreement in place that allows a Member to resign their ownership, the Delaware Law is controlling and does not allow a member of a multi-member LLC to withdraw (resign their interest) prior to dissolution and winding up of the company. One may be able to get the other member(s) to consent in writing but at the point someone wants to leave, good luck getting the other(s) to sign anything.
Edit: it doesn’t appear the Stripe Atlas LLC comes with an operating agreement; therefore, the Delaware Limited Liability Company Act is controlling and a Member would not have the right to resign their interest prior to dissolution.
I'm 100% sure it does. The description talks about things like being split into 10,000,000 units, for example, which is definitely not in the Act.
Their Operating Agreement is drafted so the resigning member would require unanimous consent of all the other members to resign.
I’m sure I’m not the only one here who has never started a company and has no idea what this means. :)
The vesting schedule should reflect their contribution to the company over time, and can be whatever the founders negotiate as reasonable. If someone helps found a company and brings a ton of immediate value (ie IP or cash or contracts, etc) then their vesting schedule can reflect that. Issues such as assignment to estate or beneficiaries are important legal issues that need to be considered at startup time as 'insurance' against things no one wants to see happen, but might.
Here is a useful link from Cooley (a large, well-respected law firm) that goes into some of the nuance of these things: https://www.cooleygo.com/founder-basics-founders-stock/