partnerships- one guy money other contractor!!!!

[Drew Burgo]

as of now i am a partner in a plumbing company with my father. after working for investors on the plumbing and light remodel end i want to venture into the house flipping end. So here is my question, keep and mind i like everything straight forward and all my bases covered. I have a friend who has cash and wants to buy in. my plan is to let him purchase the house and i fund the labor and materials for the renovation. at the end of the day we split the profit 50/50. my plumbing company is a incorporation and i plan on keeping it totally separate from this journey. my plan is to start an LLC and contract the work through the LLC. I plan on floating the materials through a home depot credit card until profit is received. everything will be recorded for materials with receipts this way. i have 10k cash laying around i will slowly deposit into my personal account, then deposit the 10k into the LLC. (paper trails) i can then pay the labor for the property with the cash i deposited through. my plan was to then send an invoice to my friend and get paid at settlement if this possibly. what ever is left goes to him since he is buying the property in his name. should i be on the deed as well? is it better not to have an LLC and do it personally the same way? if i contract the renovation through the LLC do i need to carry workers comp and general liability like my plumbing company. how to i then get the profits from the LLC to me personally? how do we not pay capitol gains since this is our first one and who's know how it will go? what am i missing here in my head i sounds like it will work but i have to be missing something here. he is eager to put an offer in on a property and i think all this needs to be ironed out before we go forward. he also owns another business which is a body shop. i am open to any ideas or insight anyone has! we are located in wonderful new jersey i might add where nothing is easy!

[Karolis Matulis]

In order for the LLC to be legitimate from the legal standpoint no co-mingling of funds must occur; meaning the funds of the LLC are to be separate from all other activities. Think of the LLC as a box which you can put money in and take money out.

Once you have created the LLC and come up with a partnership agreement you have an empty box. I would advise opening a bank account in the LLC's name. The startup money can then be deposited into the bank account. That money is the partner's contribution into the partnership and by extension his basis in the LLC. All of the activity (income and expenses) must happen from within the box. In a similar regard that bank account cannot be used to pay for expenses that are outside the box.

You can continue putting money into and out of the LLC by means of this bank account. Each transaction is a corresponding contribution/distribution.