What Business Partnership is Right for You?

What is the best business relationship for us to work together? Let’s use you and me as our hypothetical perspective joint venture partnership and let’s say that my main reason for coming to you is because I need money. We could do a joint venture where you could be bringing some or all the money in but if all you’re doing is bringing the money, we could also have a lender-borrower

relationship. We can cut a deal where we just do a private money loan and that’s how we can get the benefit of our relationship. You can get what you want, which is a return on your investment, but not as much as if we were partners theoretically, that’s one way we could work together. The other possibility is to put it together where it’s an active investor and a passive investor if you really

want nothing to do with it. In which case, it would end up being syndication. It’s a conversation that should take place at the front end to make sure that both parties are comfortable. Doing a joint venture, which is going to be different than the other two options, is something that really makes sense for both parties. That’s the first thing that people should be talking about.

Next, it is important to understand our relationship in this business that we’re embarking on. We’re jumping into this thing. I need to know what your plan is for this partnership and you need to know what mine is as well, or how we’re going to have the best value.

The next question is, what is the best form of ownership for us? Let’s assume that we have gotten past that first talking point and we say “Yeah, let’s do this, we want to do this and both be actively engaged.” We still have choices to make. One choice which I’ll mention (not because I recommend it but because in case anybody thinks it’s an option) is general partnership, you could do a general partnership, I can’t imagine a scenario where a general partnership would ever make sense, because in a general partnership, we would both be individually fully responsible for all of the liabilities of the partnership and there’s no asset protection there, it makes no sense. Every general partnership I’ve seen in the last two decades has been a limited partnership. It would be a limited partnership or a limited liability company. A limited partnership in a joint venture doesn’t really make much sense because there has to be a general partner and limited partners, it’s an option, but again, it’s difficult for me to imagine a scenario where that made the most sense. That leaves two other options, an LLC or a TIC.

Limited liability company is the most common, most popular way for joint venture partners to do a deal together. No matter how strong the partnership is on day one, it’s not a bad idea to do a TIC, so you do have that ability to go your separate ways, not because there’s a problem in the relationship but for whatever reason. You may have reasons that you want to take the money now, or you might not like the next deal that I find or vice versa. If you want maximum flexibility in a joint venture, a TIC is the way to go in which case again, you’ll end up doing a TIC agreement instead of an LLC.

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