How to Start A Partnership

Question

Hello,

I am wondering what is the best route to take if I am trying to form a partnership between myself, my dad, and my uncle. We will be starting off with flips, then possibly B&H. They will be bringing the cash, while I will be doing the rest. What is the best way to structure this partnership? Any advise is appreciated.

Ashish Acharya · Answer

@Callum Sinclair ,

As soon as you and your partners start this venture, you are considered to have formed a partnership. There is no legal filing to start a partnership. However, this partnership that is formed is General partnership with unlimited liability. You guys will have to obtain an EIN from IRS website to file the partnership website, fairly easy process.

However, you want to limit your liability by forming an LLC or LLC taxed as S-corp. @Brian Bradley will state that LLC is not really a true liability protection vehicle. But it is better than nothing if correct rules are followed, it should provide a liability protection. I generally dont bring up complex entity structure to an investor that is just starting out because it just discourages them and complicates thing. Once you keep this RE Inv rolling, we can make things more robust.

From a tax perspective,

• If you want to Buy and Hold, you can just create an LLC. 
• If you want to flip, and you expect to make more than 50-60k a year, you will save taxes if you form an S-crop.

Look like you are new to BP, there are 100s post that should give you more than enough information on this. if not, please free to post more or ask directly.

Good luck.

Brian Bradley · Answer

talk to your team members CPA and asset protection attorney to get set up correctly

Michael Plaks · Answer

@Callum Sinclair

This is a month-old post, so I'm probably late.

The simplest and most effective setup is usually to keep the whole business under your name or an LLC that is 100% owned by you, and set up your family members as lenders, as opposed to partners.

If funding the deal makes it impossible, due say to your credit, then you can reverse: have your dad own the property under his name or his LLC, and set yourself up as a contractor for him.

Bottom line: it is case by case.

Brian Bradley · Answer

@Callum Sinclair @Ashish Acharya I would not say that an LLC is not really a true liability vehicle. It is one of the parts. It takes more then just an LLC though to create true AP and barriers. Talk to your CPA and Lawyer, Get the right tax advise for you and your short term and long term plans, and talk to multiple lawyers to get familiar with all the different structures. Also get as much insurance as you can for coverage and an umbrella policy. If your goal is AP, then it is creating multiple layers of defense to protect your castle. Also when budgeting for your LLC, don't forget to plan for your Operating Agreement.

Ahad Ali · Answer

Hi @Callum Sinclair, there are  few options for you here depending on what you will be doing most. You may even want to set up different entities for the different type of activities you'll be involved in to maximize tax benefits. But to keep things simple an LLC is great.  You may also want to make sure you have an operating agreement in place so it's easier for all partners to be on the same page.

You will want to reach out to a CPA and attorney to make sure all this is set up correctly. There are many of us here on BP that can help. Good luck!

How to Start A Partnership

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