Pros & Cons of LLC for Self-Funded Searcher
September 01, 2022
by a searcher from University of Dayton in Wilmington, NC, USA
HBR mentions setting up an LLC for the search process, but that seems to be for a more traditional search fund. Buy Then Build doesn't mention it and, since the self-funded route is what I'm pursuing, I'm wondering if anyone has advice on the necessity of setting up an LLC for a self-funded search. I appreciate any advice.
from University of Minnesota in Minneapolis, MN, USA
I'd rather enter into NDAs and LOIs as an LLC in the event those documents result in some kind of liability. Is it likely? Probably not. But is it possible? Yes.
All the comments about LLCs making you look like a PE firm (bad) or making you look professional (good) are well-taken, but ultimately I believe the initial impressions of a corporate entity are unimportant compared to the nature of the interactions with brokers/sellers.
in Richland, WA, USA
Caveats: a) get it set up right with proper Operating Agreement, initial resolutions, and an EIN for the LLC itself (ie don't use your own SSN). If you can choose many from different states (eg if you're acquiring a digital business) you can't beat Wyoming for cheap ($100), low taxes, and super business friendly. b) try to stay away from using a branded email address in the name of your LLC. Always confuses deal advisors, advisors, and especially sellers into thinking you're a fund instead of a self-funded searchers. Especially when it comes to sellers, there are definite benefits to being clearly identifiable as a self-funded searcher.