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How can an LLC structure payouts?

As a sole owner/founder/lead developer of a web/mobile development LLC, how can I go about routing revenue to operating costs and then routing profit payouts to myself, as well as if I want to bring in someone to help developing a project? Also, say i have multiple ongoing projects, how can i legally/structurally separate the developers I hire from having anything to do with projects they're not developing for?

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It depends on your current financial setup and how you are recording the transactions (manually in an old fashioned ledger, spreadsheets, or financial software). As far as bringing in someone else, if they are a subcontractor you can go the 1099 route. If you want them as an employee, then you have more work to do. If I understand your final question, the separation of developers should be an easy task unless they are utilizing the same "system" you are using for all of your developers. Then, it would depend on that systems admin capabilities to initiate that sort of separation by user. Send me a note so we can chat further.

Best of luck!

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A few comments: 1. The "default" tax status for a one-member LLC is sole proprietorship ( So for tax purposes, you will just report the activity on Schedule C. You are free to use the LLC bank account for personal purposes, and pay out to yourself whenever you want. You will just want to bookkeep adequately to be able to fill out the P&L for your Schdule C. Anything you pay yourself is not technically a business expense, since you are taxed on whatever the business P&L is. Having all projects in one LLC can be helpful if some projects are profitable and some have losses - the losses will offset the profitable projects. 2. For developers, you would just pay them what is due and it would show up as a business expense on the Schedule C. Gary's comments about 1099 vs. employee are appropriate. 3. You could do whatever you want from a bookkeeping perspective to keep track of individual project profitability. You might want to check out project-tracking capabilities for different software packages if that is important to you. But your tax return (and any LLC filing that your state might require) would just include the combined totals. 4. If you have significant assets in the LLC that you want to shield from liability (if sued), then separating the different projects into multiple LLCs might make sense. But this is far more complicated and costly, so I wouldn't recommend it unless the liability issue is critical to you. Hope that helps. Robert

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LLC operating agreements are for executing specifics between owning members regarding the share of ownership in the firm, the roles of the members, who can sign for the company and how one member may buy another member out plus many other considerations. Operating agreements are not required by government agencies but are very important to a company. They should be reviewed by a lawyer and notarized, then place in the official company files. You may download a free LLC operating agreement template at the "References" file in the BOX at the right margin of the site I maintain as an extension of my volunteer work:

Since you have not stated that you plan to have other developers share in the ownership of the firm (become members at a specified percentage). I believe you are in need of a job cost accounting system with a general ledger and subsidiary ledgers that allow you to set up individual projects and track them, executing contracts with your developers to track each project's direct cost. and pay developers under their individual contracts.

Job cost accounting systems also allows you to allocate an overhead amount from indirect cost (company operating expense accounts) based upon the weight each project bears in terms of direct cost as they run in parallel.

You can read about job cost accounting a bit more at the following two links. At the first link note that job cost accounting is required under all federal government service contracts for the type work you perform. * * ** At the second link note a rudimentary application of the principles described above, with a simple upgrade from inexpensive Quick Books Software is an approach many of my clients use.

The 3 most vital element my clients must address in achieving what you have described in your profile are:

A long range financial plan (LRP) forecast the develops pricing based forecasts of direct and indirect cost against project and expense accounts. The same accounts are then replicated in the accounting system for tracking actual costs and payments to suppliers.

Contract formats and terms and conditions for suppliers (developers in your case) that are written to lock them into a statement work and financial/schedule baseline milestones that tie out to payment from the accounting system and apply overhead to yield a balance sheet and profit and loss statement. Setting 1 and 2 up in advance of commencing work to avoid bottlenecks in processing and unhappy business relationships..

If you would like to correspond further on the above, please get back to me here at Micro Mentor and I will send you my personal contact information.


Ken Larson

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