Boutique Hotel - Partnership LLC structure

[Gordon Middleton]

Hey everyone,

I've read a ton of posts surrounding the subject of LLCs and quite of a few of them with specificity to hotels, motels, etc. That said, most involve single owners so that's why I'm creating this thread. 

I am a part of partnership (Let's call it Partnership A) that owns several holding LLCs and that is about to go into a partnership (Call this Partnership B) to buy a boutique hotel. Partnership B will be 10% Person A, 10% Person B, 80% Partnership A. I'm at a full understanding that best practice with hotels is to separate the property from the business by establishing a separate operating LLC (Operator). The trouble I'm having is what the ownership structure of Operator should be. If ownership is the same as Partnership B, then we're looking at two separate K1s which is a pain. If ownership is a single member (me), then one of two things happens. 1) we go with the lease agreement option and then Partnership B is receiving passive income that is much lower than what is expected; or 2) we go with a management fee option and then all the profit flows to Partnership B, but the expenses unequally benefit me as the single owner.

I'm trying to determine if the solution is to make Operator an (s) corp or if that still unequally benefits the single owner because I'll have to pay myself an acceptable wage. 

Any insights welcome here and feel free to blow up my structure because I know I've got a pretty loose grasp on all the concepts here. Just want to get it right now so we can focus on the important work of actually running the hotel!

[Stuart Udis]

@Gordon Middleton  Remember, if the intent is merely to create separation for liability purposes, you are creating the clearest alter ego case imaginable. This truthfully offers no additional liability protection. Keep in mind any good plaintiff's attorney is going to bring all parties incidentally related to the legal claim in as an additional defendant. There is nothing you can do to stop this first chess move on their part. Remember they are first and foremost chasing the insurance dollars and they are going to take inventory of anyone connected that has insurance. This would certainly mean the management company as well as the deed holder.  The other reason you mentions is accurate, it tends to be more operational rather than liability driven.



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