All Forum Posts by: Chris K.

@Cynthia Harrison

There are already many helpful comments above. But I just wanted to add to what @Eamonn McElroy wrote: while an attorney can help you with the operating agreement, most attorneys are not qualified to answer many of the tax questions you may have. I would strongly, strongly suggest that you work with a CPA as well when you work on your operating agreement. 

When I practiced more, I toyed with the idea of just requiring all of my clients to hire a CPA if they wanted to work with me. I couldn't do that for many reasons but I feel that strongly about it. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

I personally do not like 50/50 structures. And in this scenario, I don't really see why it is inherently necessary for you guys to partner up on this deal.

Note that the ownership percentage is a different question from the amount of time you spend on the investment. The amount of time you spend on the investment is also a different question from how much money you guys will invest in this deal. For example, let's say you get a 70/30 split. That's fine but how does that affect the initial capital contributions and any capital call in the future? 

Unfortunately, there's no one-size-fits-all answer to these questions. If you guys want to partner, then I would suggest that you guys hire an attorney and work it out. The problem is that it's not always practical to hire an attorney for smaller deals or one-time deals. So another factor to keep in mind is whether you see yourself investing with your friend in the future.  

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Nik S.

I don't know anything about Ohio Law but I would check to see if such transactions would actually avoid the transfer tax. In Pennsylvania, it wouldn't. 

Aside from the above, buying an LLC is a tricky process that requires a lot of due diligence. You should also note that most buyers prefer an "asset sale" versus a "stock sale" that you describe here. Granted, that's more likely the case when you are selling/buying a traditional business. But some of the concerns of a stock sale should apply to your situation as well. For example:

• You will inherit all the liabilities. You can follow the advice from @Tom Gimer and ask for an indemnification. But it's a different manner to enforce an indemnification agreement. 
• In most situations, a stock sale is unfavorable to the buyer when it comes to the tax basis.
• Same when it comes to depreciation. 
• There are also weird rules about write-offs depending on how the purchase price is structured. Way over my head but it came up as an issue in my past transactions.  

I would work with an attorney and a CPA for this kind of transaction. While reassessment is a valid concern, there are many other issues to consider. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Karl B.

Not the standard procedure, but it happens. Get the contact information, be polite, find out what happened, and do what you need to do to get it set up for tomorrow. Constables, sheriffs, and even the courts can screw up for various reasons. Unfortunately, there isn't much you can do about it unless the error was very egregious.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Bill Nolan

This may have nothing to do with what you are looking for. But if you are an entrepreneurial type, I would try to find a way to set up a proper 401k plan. Solo 401ks are fine but a proper 401k plan is pretty amazing from an asset protection perspective due to ERISA protections. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Henry Davis nguyen

What state? MA?

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Brent Crude

It's hard to say without looking at exactly what you want to do. But as a general rule, using a "Matryoshka doll" approach to LLCs do not always lead to better protection. It could even make it worse in some cases. 

For example, I've seen some DIY folks stack five single-member LLCs together. What they don't always realize is that having five LLCs stacked on top of each other is meaningless if there are ways to hold you personally liable as the sole member. Maybe it causes a slight annoyance to a potential plaintiff or creditor but nothing that an average, competent lawyer hasn't dealt with. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Rebecca Graziano

Unfortunately, W-2 Income is just inefficient when it comes to taxes. A good CPA/Tax Specialist could help you reduce it but here is a limit. 

It's one reason why even high earning professionals want to move away from W-2 income as they realize fighting taxes is a major part of the battle. It's also a major reason why if you look at really highly compensated employees (e.g. CEOs of major corporations), their compensation is not just a check but include items like stock options. 

There are good discussions on this topic in many books including Rich Dad, Poor Dad and The Millionaire Next Door. If you haven't had a chance to read them, you may want to check them out. Both books give reasons on why folks with high earned income do not always end up "wealthy." 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Jessica Zolotorofe? 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Part of the problem is that most smaller investors are working on smaller projects. And oftentimes, the projects lack enough margins to afford the "best" contractors.

Consider the common claim on BP: you cannot find contractors that are good, affordable, and timely. While true as a practical matter, it's not because there are no such contractors. The issue is that if a contractor can deliver all three, their business will blow up. And once it blows up, they move on to bigger, more stable projects.

That's good for their business. But they are no longer "affordable" to the smaller investor at that point. Hence, the search continues.

On a related note, I would say that the biggest issue that small investors face is underbidding. Many disasters happen because smaller contractors run out of money during the job. Now I would say many contractors do not do this with malicious intent. They instead lack the skill to do a proper bid. This issue gets compounded since many investors don't know how to spot an unrealistic bid. Hence the countless posts on BP where the investor got burned by accepting the lowest bid.

This is why in the "proper" construction world, the GCs have many meetings with their subs to de-scope the bid. During that time, the GC and the subs to review how the subs arrived at their number. There, they make sure that the sub has included all the labor and materials for their scope of work. This allows the GC to make sure they are comparing apples to apples. They also review logistical issues that the subs may not pick up from the bidding docs. For example, not having on-site storage can cause a lot of logistical and financial issues. Same goes with restrictions on equipment.

After these meetings, the GC often asks the subs to increase their bid. This is not because they like the subs and they want to pay them more. It's because they do not want the nightmare of dealing with an unqualified sub that underbid the job. It often delays or even halts the project. When you have 30 to 50 subs on a job, those delays impact everyone. So no one wants it.

I would say the same principle applies in the smaller world as well. The problem is that it's hard to execute all this at a smaller scale. And it may ultimately be a scale problem --- it's hard to work with the "best" when you work on smaller projects. There's just not enough money to go around.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.