I'd appreciate any input from the legal community on this fact pattern:

I'm a 50% partner with one other person in an Illinois LLC. We incorporated approximately 18 months ago with an initial capital contribution of $1,000 (enough to get us incorporated) and my partner and I are the only two employees. We have never declared a dividend.

Although we established bylaws, we never voted to establish our salaries as employees. During that time, my partner drew a salary that was about double what mine was (he has a family, higher expenses, etc., while I am by myself) and I didn't object. He brought more to the corporation in terms of having an established solo practice already although he often operated at a loss while I had no capital to contriube, but I did contribute my professional experience.

In a recent conversation, I indicated that my long-term plans might be to leave the firm. He immediately stated that, in that case, we would have to discuss how he would recoup his investment in the practice.

If anyone needs additional information, I'd be happy to provide it, but my questions are these:

1. How do we determine what each of us has invested in the practice? He has brought more firm revenue but I have provided sweat equity.

2. If a corporation's board doesn't vote to set salaries for employees, as ours did not, is there any statute, or case law or other legal support for the contention that our salaries should have been equal, as is our interest in the LLC?

Many thanks in advance.

Each state has laws that set out basic operating rules for LLCs, some of which will govern your business unless your operating agreement says otherwise. (These are called "default rules.")

Many states, for example, have a default rule that requires owners to divide up LLC profits and losses equally, regardless of each member's investment in the business. If you and your co-owners did not invest equal amounts in the LLC, it's doubtful you'll want to allocate profits equally. To avoid this, your operating agreement must spell out how you and your co-owners want to split profits and losses.

By writing an operating agreement, you can choose the rules that will govern your LLC's inner workings, rather than having to follow default rules that may or may not be right for your LLC. As an owner of an LLC, you are not required to take a "salary" where you would normally pay FICA and Medicare taxes on. Instead the net income of the LLC becomes subject to the same FICA and Medicare taxes up to the current limits. The net effect is the same, but by not taking a "salary" you do not have to file payroll tax reports with the IRS. get a lawyer for in-depth details.

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Have you browsed through the information in LawInfo's Free Legal Resource Center to learn more about your issue yet? See: http://www.lawinfo.com/consumer.html and http://resources.lawinfo.com/en/index.html. You can certainly try to speak to a lawyer to determine what legal options may be available. In the meantime, you may be able to learn more on your own. Search the "Free Legal Resources" tab, or browse the Consumer Resources. Good luck.