Profits Percentage Collaboration Responsibility

[aiello]

I have the possibility of stipulating a contract with an American LLC to manage its marketing in exchange for 45% of the profits, I wanted to know if this agreement exposes me to any critical issues, for example, if I would have direct responsibility in case the company with I work with had tax or other problems, then I wanted to know if the percentage was too high and someone could accuse me of hidden direct participation, therefore effective control.

If this contract presents critical issues, is it better to have a collaboration contract as an affiliate to get 20% of the gross earnings I generate with my marketing work? At the end of the day, the final amount would be comparable.

Obviously, I would notarize the contracts in the US and where my company is located.

 

[daniels27]

Are you and your partner both US residents for tax purposes? Are you in the same state?

I would say, it depends a bit on the volume. 45% of $10000 per month is just $4500, which you can easily consider a variable pay and simply invoice with. I doubt, there will be many questions. When the marketing expense grows and becomes more than a "fair market value" for the effort you put in, things will get more complicated. On one side, your partner's business expenses may be challenged by the tax authorities. You can then still justify them if you have clear contracts etc. But 4.5M per year for an effort of 1 hour per day, will probably be challenging to justify.

In this case, you may legally have entered a partnership with your business partner:
https://www.law.cornell.edu/wex/partnership
In regards to tax, I would recommend to have a solid and clear contract which clearly states your duties and that you have / have no control over the daily business apart from marketing. And also then, I would specify who takes the final decision on marketing spend and makes the payments. If you are in the same jurisdiction there will be less questions than if the company is in the US and you only pay no taxes in Dubai, which will immediately raise questions on the seriousness of the spend.

 

[aiello]

Are you and your partner both US residents for tax purposes? Are you in the same state?

I would say, it depends a bit on the volume. 45% of $10000 per month is just $4500, which you can easily consider a variable pay and simply invoice with. I doubt, there will be many questions. When the marketing expense grows and becomes more than a "fair market value" for the effort you put in, things will get more complicated. On one side, your partner's business expenses may be challenged by the tax authorities. You can then still justify them if you have clear contracts etc. But 4.5M per year for an effort of 1 hour per day, will probably be challenging to justify.

In this case, you may legally have entered a partnership with your business partner:
https://www.law.cornell.edu/wex/partnership
In regards to tax, I would recommend to have a solid and clear contract which clearly states your duties and that you have / have no control over the daily business apart from marketing. And also then, I would specify who takes the final decision on marketing spend and makes the payments. If you are in the same jurisdiction there will be less questions than if the company is in the US and you only pay no taxes in Dubai, which will immediately raise questions on the seriousness of the spend.

Hi, thanks for your answer, I forgot to specify that the company whom I'm getting the deal from is a single-member llc foreign-owned, so not taxable in the US, my company will be in Cyprus paying taxes in Cyprus, and it will not be an hour work from my side tho, it will be the management of the whole funnel marketing of the company that sells physical products, the possible gain from my side would be 40/50k a month

 

[daniels27]

Hi, thanks for your answer, I forgot to specify that the company whom I'm getting the deal from is a single-member llc foreign-owned, so not taxable in the US, my company will be in Cyprus paying taxes in Cyprus, and it will not be an hour work from my side tho, it will be the management of the whole funnel marketing of the company that sells physical products, the possible gain from my side would be 40/50k a month

Ok. Where is the other company yes resident? I hope not Germany, this will lead to discussions at least with his CPA.

 

[aiello]

Ok. Where is the other company yes resident? I hope not Germany, this will lead to discussions at least with his CPA.

the LLC is owned by a Panamanian person

 

[daniels27]

Ok, both low tax. I would not be worried too much in this case about tax authorities questioning any profit shifting. Even if you trust the person, get a good and solid agreement ahead of the start of the business. It will come in handy should there be any questions about the business agreement etc.

 

[aiello]

Thanks buddy, I appreciate your insights