How to structure splitting a deal

Question

Curious if anyone has advice for how to legally spit a deal with someone else?

I'm looking at putting a deal together but will need additional capitol from friends/family. Curious if anyone has any pointers on how to best set up the deal through contracts, should I be incorporated, agreements, etc?

Any help would be much appreciated!

David M. · Answer

@Dan Miklosz

Of course, consult a professional..

Otherwise, you really need to form a legal entity, such as a partnership or LLC.  Nowawadys, one generally forms a LLC for the limited liability protection it can afford since the costs for forming either are pretty much the same I believe.  The Partnership Agreement, for the former, or the Operating Agreement, for the latter, spellout how the profits/losses are split between the Members (owners of a LLC are called Members).  The agreement should spell out a bunch of other contingencies (the morbid example is what if one of you passes away...).  An attorney can help you out with all of this.

LLC's having more than one member are called multi-member LLC's and by default are taxed as partnerships.  A partnership tax return will need to be filed every year and, per the operating agreement, the profit/loss will be flowed down / assigned to each member via the form K-1.  With the K-1 (think of it like a 1099 or W2 form), the individual can file their individual tax return.

With family, there is the concept that you should be more formal since its too easy to get into arguments which have lasting effects.  Then again, there is the concept of not investing at all with family --- for the same reason.  You could somewhat go more informally, but then thats not your question and you are really screwed if something wrong.

That's the short, beginning answer to get you started about how to legally setup investing together.  Good luck.