How do I structure a partnership? 8 Unit in Texas.

Question

Michael Plaks · Answer

The starting point is to define "partnering up." Who is doing what, who is contributing money, who is responsible for what, what happens if such-and-such etc.

This job is for a TX real estate attorney. Usually, it's forming a Texas LLC with a customized operating agreement. I advise you against looking for an online boilerplate paperwork.

Phil Goodwin · Answer

I had a meeting today with a potential investor.  It is really up to how your team wants to do it.  Some investors are happy getting a preferred return of 9%, 10%, etc.  They get this money before you take a profit.  Other investors are willing to split the equity in the partnership based on the the cash each person injected.  If you are putting the deal together and will act as the manager of the property (collecting rents, screening tenants, coordinating repairs, banking, accounting, etc) then you should deserve something for your time.

Phil Goodwin · Answer

@Eamonn McElroy what I meant was if you and your partner agree to a equity/ownership interest then ask your attorney to draw up the operating agreement but ask him to keep the language as simple as possible where applicable.  I agree your attorney absolutely needs to protect you and you should ask him to explain anything you don't understand.  I am a commercial banker and I am sure as a CPA you would agree that most of the time attorneys do a good job of representing their client BUT  sometimes attorneys get in the way of a transaction.

Eamonn McElroy · Answer

@Phil Goodwin

"tell your attorney not to "lawyer it up" with language no one understands."

Can't type how much I disagree with this statement.  If you don't understand the language, ask the attorney to explain it to you, that's what you're paying him/her for.

An attorney's job is to protect you, don't hamstring them from doing their job.

Phil Goodwin · Answer

I form LLC's for my partnership and I use Legalzoom, I live in PA.  Obviously check the laws in TX to make sure you do not need to do anything special.  Get your attorney to draw up the operating agreement and tell your attorney not to "lawyer it up" with language no one understands.  Have your partners get their own attorney to review the document...just smart business practice so that no one accuses another of "hiding something" if a problem ever arises down the road.

How do I structure a partnership? 8 Unit in Texas.

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