Oral Surgery Office Development Deal Structure Question

[Taylor Nielsen]

Hello All,

This is my first post on BP. I listen to the podcast and love it. I am getting into my first deal this coming summer. My father is a partner in a large oral surgery practice. They are looking at opening a 4th location (6,000-8,000sqft). My father and 2 of his partners are going to develop the building (this has been the established pattern in previous offices that the partners are the investors and they hire a 3rd party to develop the site and building). My father and the 2 other partners will be forming an entity to negotiate a lease with their oral surgery practice entity. My father wants to split his %33.33 share of the deal with me as he does not want to put too much of his liquid cash into the deal and limit his exposure. I am thinking that the best way to do this is to form and LLC (or other entity) with my father and then use that entity to sign for the entity with the other 2 partners in the deal. This would give both my father and I a %16.66 share of the deal and limit his exposure. All cash investments and leverage would reflect % share of the deal.

My question for you wonderful BP contributors is this. Is this a good way to structure the deal? what advise would you give me on on doing this deal? Also, there was a recent podcast on BP talking about new tax code implications on future deals and how structures should be set up to make all partners "non-limited" but I did not fully grasp the reasons why. Can any of you explain why in layman terms? Any and all advise is very welcome. Thank you in advance. I can provide more information as requested. 

[Jonathan Orr]

@Taylor Nielsen are you stating that you and your father would create a separate entity in addition to the entity that you father has with his 2 other partners? Why wouldn't you just jump into their LLC and contribute?

A non limited company can (depending on tax laws per state) mean that the individuals that are non limited are responsible for debts for the company.  I would stay away from that.

The creation of a LLC would be find because the business and development is going under that LLC which provides some protection if anything goes sideways.

As an example for my developments. I have a corporation that I operate under (corporations are better for taxes. I take that corporation and partner with other corporations (my development or investing partners). Thus creates a general or limited partnership. From there we create a single entity LLC (the LLC that the project goes into).

I am no a tax professional so I would consult with a tax attorney or CPA to see how you would be taxed under any scenario.

Good to see professionals getting in with development partners to get the building off the ground, I see so many people with money that try and do the development themselves and they end up putting the project underwater.  If you are ever looking for development help, let me know.