Best way to set up a Partnership for investing

[Janetta C.]

Hey Guys! My cousin and I decided to partner up and invest together in the Richmond, Va area. We will do both the BRRR method as well as flip depending on the deal and how the numbers are.

Were planning to establish clearly defined roles/expectations and create terms of agreement. However the basic plan is to use my credit and her capital to acquire deals.

My question is how should we arrange our partnership? Should we each set up an LLC, do a multimember LLC, or perhaps form a Corporation? What would be the best way to legally arrange our partnership knowing the basic dynamics.

Any advice is appreciated! 

[David M.]

@Janetta C.

Ultimately you'll take Title in a multimember LLC. Don't forget that you'll need commercial financing so be sure to find a commercial lender

Talks to some qualified professionals, lawyer and accountants...

Depending on how you want to operate, you each might want to creat your own single member LLC and. Have your single member LLC's be the members of the final multimember LLC. Your own individual LLC's might be nice for branding purposes or if you decide to to other deals you already have a LLC setup. You might have multiple deals in the multimember LLC or do just one... also, maybe in another deal you will have a different arrangement or add a third person. That final multimember LLC can have a different operating agreement to accommodate.

You don’t really do investing with a C Corp. if you really get rolling you can elect to be taxed as a S Corp (remember, it’s not a legal entity, just a taxation status) and take advantage of not paying some self employment tax.

Make sure you understand how to operate the legal entities, especially to protect and maintain their corporate veil. Without it, you lose the limited liability that you wanted and probably need. Don’t co-mingle your funds. Don’t use your entities as an alter-ego. I ask myself: if this was a complete stranger, would I still do ..xyz..

I hope this helps. Good luck.

[David M.]

@Janetta C.

Ultimately you'll take Title in a multimember LLC. Don't forget that you'll need commercial financing so be sure to find a commercial lender

Talks to some qualified professionals, lawyer and accountants...

Depending on how you want to operate, you each might want to creat your own single member LLC and. Have your single member LLC's be the members of the final multimember LLC. Your own individual LLC's might be nice for branding purposes or if you decide to to other deals you already have a LLC setup. You might have multiple deals in the multimember LLC or do just one... also, maybe in another deal you will have a different arrangement or add a third person. That final multimember LLC can have a different operating agreement to accommodate.

You don’t really do investing with a C Corp. if you really get rolling you can elect to be taxed as a S Corp (remember, it’s not a legal entity, just a taxation status) and take advantage of not paying some self employment tax.

Make sure you understand how to operate the legal entities, especially to protect and maintain their corporate veil. Without it, you lose the limited liability that you wanted and probably need. Don’t co-mingle your funds. Don’t use your entities as an alter-ego. I ask myself: if this was a complete stranger, would I still do ..xyz..

I hope this helps. Good luck.

[Janetta C.]

Thank You @David M this is really good advice.

[Cal Dunagan]

@Janetta C.

David's advice is excellent. If you're looking for some more information regarding this, I found a good article relating to LLCs and partnerships here on BP. Let me know if this helps.

Best of luck!

[David M.]

@Janetta C.

Your welcome.  I'd be happy to chat if you like.  It will give you a leg up when you talk to your accounant and attorney.  Just direct message me.  Take care.