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Updated over 5 years ago on . Most recent reply presented by

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LLC formation with Partner suggestion

Jefferey Chheuy
Posted

Hey everyone! Just had a question regarding LLC formation and what you guys think is the appropriate way to approach this. My brother and I have just gotten an offer accepted on a home. We want to form an LLC but are unsure if it's better to do a multimember LLC which was quoted by our lawyer to cost about 1,000 or if we should just create separate single member LLC's for about 500 each. Does it make sense to do one over the other?

Also anyone else familiar with costs of LLC. I got multiple quotes from different lawyers and seems like it fluctuates from the 400-700 range for single member with that 1k being the only multi-member quote I got.

I looked at trying to filing an LLC on my own but I'd only feel comfortable doing that if it was single member.

Most Popular Reply

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979
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Costin I.
  • Rental Property Investor
  • Round Rock, TX
952
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979
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Costin I.
  • Rental Property Investor
  • Round Rock, TX
Replied

@Jefferey Chheuy Before you can start to set up the legal framework, there are various issues that need to be addressed. These can be summarized as follows:

What are the objectives of the joint venture?

  • general trading principles
  • what will the business actually be doing

Who puts what in?

  • cash
  • other assets
  • services
  • are any existing contracts of either to be taken over by the joint venture
  • who actually does / will do what

Will any external funding be needed?

  • who will it be raised from
  • who will borrow it
  • who will guarantee it

Who gets what out?

  • sharing of revenue profits or losses
  • sharing of capital gains or losses
  • is any payment to be made to either other than as share of profits, eg for ongoing services
  • will the participants be operating a ‘salary/dividend split’ – ie taking their month by month requirements by way of low salary, balance as dividends?
  • What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?

Who controls what?

  • responsibilities for day to day running, in all relevant areas of activity
  • tactical decision making (day to day)
  • strategic decision making (longer term policies)
  • what things can only happen if both parties agree
  • what will happen if you can't reach agreement on some major issue - ie deadlock

What happens if either party 'wants out'?

  • on what kind of notice will this be permitted
  • does the other have 'first refusal' to take over the whole venture? - if so, on any favourable terms?

To what extent will the parties be free to carry on other businesses

  • while the joint venture subsists
  • if one party pulls out

Is it intended that spouses/partners should also be shareholders, to allow for tax advantages from a broader split of dividends?

Is there a vision that any others will become shareholders (or be granted grant options to acquire shares) in the company in the future?

  • Who?
  • Staff?
  • Others?
  • On what terms?
  • Participation in dividends?
  • Voting rights?

Are there any offshore angles:

  • Is there potential for overseas sales or operations?
  • Does anyone involved in the venture have any overseas connections?
  • Does anyone involved in the venture have any plans to live overseas in the future?

Is there yet any written:

  • business plan?
  • marketing plan?
  • cashflow projection?

Is there an ‘exit strategy’? If so, what is it – which of the following most closely hits the mark?

  • ‘lifestyle’ business – ie simply intended to be run by and to provide an ongoing source of work and income for the proprietors, no clear vision for the long term future?
  • possibility of future sale at some point?

A core object of the venture is to create an asset with a view to sale or flotation in 5 years?

Which aspects of the above do you feel most important at present? Which aspects concern you most? (NB each of you may have a different view here, the question is asked to help understand where each of you is coming from) 

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