Receiving 49% ownership of RE investing Business.

[Allan L.]

My mom and I are planning on starting a real estate investing business. 

Basically, she is putting in majority of the startup capital and I will do majority of the work. I'm going to simplify our plan here. 

If mom puts in 100% of the capital but wants me to have 49% ownership would there be issues with taxes and perhaps inheritance down the line?

Also if anyone has advice on what business entity we should choose please fire away. Thanks!

[Troy Fisher]

Originally posted by @Allan L.:

My mom and I are planning on starting a real estate investing business. 

Basically, she is putting in majority of the startup capital and I will do majority of the work. I'm going to simplify our plan here. 

If mom puts in 100% of the capital but wants me to have 49% ownership would there be issues with taxes and perhaps inheritance down the line?

Also if anyone has advice on what business entity we should choose please fire away. Thanks!

Working with family can be difficult at times, but also very rewarding. I myself partner with my Mom too. There was a little family issue, in regards to inheritance but we made my brother a 1% voting member in the business, giving us each 49.5% voting rights in the LLC and 50% ownership shares. I made the concession to give up some pretty sentimental family property in exchange for family cohesiveness. But when we all sat down after the first year, we worked out a payout at death to allow for me to still get in on the family property but to cash out 25% stake of the company. Part of giving my brother a voting share, it means he needs to be involved in annual corporate meetings and knows what is going on even if he is not involved in day to day operations. And if we have problems agreeing we have a third party vote to break ties.

Ready for the hard part? It's not quite like talking to a partner, often times it feels like that I'm still a child being nagged to get my homework done, and it can be stressful to try to be forceful in my position. A legal structure is a must, and the rest of the family should be kept in the loop on what is going on.  The legal structure allows you to simplify the problem of inheritance (assuming multiple inheritors).  It also defines roles and gives transperancy to the rest of the family. The last thing you want is to have a bad thanksgiving dinner.

To address you other question about taxes, it depends.  I'm not a CPA but we are buy and hold investors so everything flows through on our K9's and it is just split on ownership shares, though it is probably more beneficial for someone who has more passive income (not me!) In an active flipping business you have other complications and should definitely develop a better plan.