Partnership LLC Entity Formation
Frequently Asked Questions
Q: Do I need a partnership LLC or just a regular LLC set-up?
A: Partnership LLCs are recommended for partnerships as we will draft additional items into the operating agreement (partnership agreement) regarding the specific nature of your partnership. This can cover who is doing what, who is putting in money, what happens if you need more funds, etc. Our regular LLC set-up includes an operating agreement that includes partnership terms but doesn’t typically include enough attorney time to have additional partnership terms includes.
Q: What should I discuss with my partner(s) and have included in a partnership LLC operating agreement?
1. What are the parties’ responsibilities?
- Whose credit?
- Whose money is being used and how much?
- Whose services and work are required (is this full-time or part-time)?
2. Who will have access to bank accounts and authority to pay expenses? Is there an amount limit where each partner or all partners must agree on (e.g., expense more than $1k or $10k)?
3. Who has the management responsibility? How are decisions made (e.g., everyone must agree, or majority rules)?
4. Who will hold the title if there is real estate or other assets?
5. How will profits be handled and are they after expenses?
- What is paid first before profits are distributed? For example, all current and expenses due are paid to date, anyone who put money in is paid back first, any debt payment (paid off in full or just current on monthly payments), and then profits are distributed based on profit and loss percent.
6. How are expenses shared? If more money is needed, who is required to add in money? Each partner based on percent of ownership.
7. What is the exit strategy on the business or property? How long will it be held? When will it be put up for sale?
Q: Will my LLC save me taxes?
A: No! LLCs will help with asset protection and are also great for partnership ventures.
Q: What state should I set up my LLC in?
A: Most often you will set up your LLC in the state where you are conducting business or where your rental property is located.
Q: Why do I keep hearing I should set up my LLC in Delaware, Wyoming, etc.?
A: There are specific reasons that setting up in these states could be beneficial, like for privacy or COPE protection. We suggest speaking with an attorney to determine if this strategy works for you.
Q: I need my LLC to be taxed as an s-corporation. Can that be fixed?
A: We can fix that! LLCs are versatile, we can file a form with the IRS to have your LLC taxed as an S-Corp and back date it to the beginning of the year (or to your start date if your LLC is less than a year old).