An LLC, The SEC, and me

[Ronald Perich]

So many threads on this topic and yet very little clarity for me. 

One in particular peaked my interest (http://www.biggerpockets.com/forums/311/topics/844...). @J Scott, Jillian Sidoti, Bryan Hancock, and Chris Martin all had good comments.

I want to go into my attorney with a little foreknowledge so I am comfortable they know what they are doing.

I'm thinking of a structure that will help me start a flipping venture to help me fund buy-and-hold independently:

• Form an LLC with a friend or family member I have known for a while.
• They may or may not live in my state. For the sake of clarity, let's assume they do not live in my state.
• We are "equal" partners in the company and are treating as an S-corp for taxation purposes.
• I'll take a nominal salary as the President, they'll take one as the CFO. The salary is reasonable (not $1/yr or anything like that). Maybe something like $15K each the first year.
• My partner is responsible for funding our acquisitions, likely with personal funds.
• I'm responsible for finding, managing the rehab, and selling the properties.
• We each take equal distributions of profits.
• We must both agree that a deal makes sense and have paperwork (e-mails and the like) between us.
• We'll likely keep operating this way over the course of a couple of years.

So I don't think this really is an SEC thing, since we are agreeing to partner and both work it. We both have to make agreements, and we'll both have to meet regularly to talk business. But I'd like to make sure of this assumption. What would a good CPA and attorney ask me or suggest?

Second, when I do talk to the attorney, I think my biggest concern is around the salaries and dissolution piece. 

I know a lot of people will use the 50/50 split without an LLC or anything like that. But then it feels like it could be considered a security if they weren't actively involved in the rehab process. Especially if they aren't what is considered an accredited investor.

1) Would love some feedback what I should be asking the attorney and CPA.

2) Would like your feedback on the proposal itself.

[Tom Spaeth]

You seems just a bit paranoid about the SEC. You can partner up with anyone you want and neither of you have to actually take salaries or any of that. An LLC is an agreement between one or more persons to run a business venture. The SEC does not get involve nor regulate such activity.

That said do not go and try to get people you don't personally know to invest in a venture with the PROMISE of future returns. Think selling a stock kind of a position. Having someone provide you a mortgage on a property goes into the gray area here but doubt the SEC will come looking for you as long at the Note is secured.

Now if your plan is to have multitudes of people invest in the LLC so you startup some big fund to do flips - Then you may want to talk to an SEC lawyer. CPA no good - Your need the lawyer.