Does my silent partners needs to be in my LLC

Question

Hello everyone! I have a silent partnership agreement with a friend in where we established the I will be the managing partner and he will be the silent partner. Me as the Managing Partner shall have full and sole authority and responsibility for managing and operating        the business of buying, flipping, and renting of real estate properties.

He as the Silent Partner shall not participate in the day-to-day management or decision-making of the    business of buying, flipping, and renting of real estate properties.

My question is, when establishing my LLC to buy the property do I have to add him as a member of the LLC in the certificate of formation? Thanks!

Chris Martin · Answer

@Brenda B. you should really have an attorney prepare a multi-member LLC Operating Agreement (OA) and run the idea(s) you have on financial arrangements by a qualified accounting professional. The rationale is: make sure you've thought through all (or most) of the issues that can come up. Think about your taxes on Form 1065, specifically how your K-1s will look in the future. Your P/L/C percentages (Profit/Loss/Capital) are key here. Does your partner want to take a big chunk of the losses (depreciation) to offset income? Is Capital contributed by just cash contribution or by services (like managing property) contributed? All this is part of the planning and should always be in writing, ideally in the LLC OA.

I've been extremely fortunate that so far, my partnerships (from most of 18 members to the least at 2) have worked out. I spent a lot of time reading through my state's LLC laws. I recommend you do the same. I googled Texas LLC code and I think this is applicable for you. Learning the LLC rules and educating yourself is extremely valuable and costs almost nothing, but a little time.

Chris Seveney · Answer

@Brenda Boral

If it’s a loan he is not in the LLc and there should be a loan agreement. If he gets profits he needs to be in the operating agreement and LLc which should then have management provisions and buyout provisions.

Jose Jacob · Answer

Depending on how you are planning to pay your friend  the profit out of the transaction. When you invite any type partnership, it has to be in a  crystal clear written agreement between the partners. I have seen friendship go south with partnership. It will be very hard (in most cases) to keep friendship with a business relationship until it has to be written and each one follow the rules according to that written agreement.  You can give a percentage of the membership to your friend if you planning to share the profit and your friend can be a member for ever. If that person want profit from each deal going along, you can make agreement with each deal you are doing.  It seems like you both have conversation to buy and hold properties in long hold.  IN that case, you both should be in LLC to protect each other.  Good luck

Andrew Syrios · Answer

If he's an equity partner than yeah, he or his LLC should be in the LLC as a member. The LLC operating agreement should spell out each of your roles and make clear you are the decision making partner and he is the silent partner. You'll also want to come up with the process for dissolution if that comes to be as it often does in partnerships unfortunately.

Andrew Syrios · Answer

In that case, yes he should be a partner in the LLC. I'd talk to a lawyer about drawing up an operating agreement if you both want to move forward.

Brenda B. · Answer

Thank you Chris! great information! He told me he wants to be my silent partner, no time to work on the flipping. I will make all the decisions, and we will split the profits 50/50 or the losses 50/50. Also, with your partners, are they silent partners? Do you shared the banking information? meaning do I give hin access to the bank account?

Brenda B. · Answer

well he is going to give me the money and I will do all the decisions so he will be a capital partner? He is very busy and cannot handle more work at the moment so he told me he wants to be my silent partner and split the profits 50/50 or the loss (hopefully no losses)

Bob S. · Answer

totally up to the both of you. Not sure what his/her role is. Partner how ?

Brenda B. · Answer

Great thank you really appreciate it!

Does my silent partners needs to be in my LLC

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