Business partnership structure...

[texaslady1104]

I have been in business for many years, but looking to 'partnership' with another person.  We are trying to decide which would be the best way to do this as far as the IRS is concerned and to protect our personal assets without costing us a fortune.   I have contacted my Attorney (who wasn't really helpful) - the IRS (who is NON Committal) and my CPA lastly.  Waiting on a return call...
Thought some of you would have suggestions or info. for me!  Do's / Don'ts...
thanks

[gene]

I'm in Ohio. I don't know if my understandings apply to Texas.

First, from what you said, you need a new attorney.

Second, get everything, everything, everything, in writing - business plan, marketing plan, partnership agreement. A good lawyer is the best way to go. There's a company called Nolo, that has books that can take you through the partnership process step by step, whether you incorporate or form an LLC.

In Ohio having an LLC Partnership is the way to go without incorporating. This protects each of you from liability. Your company, the LLC Partnership, gets sued, not you or your partner.

Also taxes are pass-through: you fill out a Schedule C on your Federal taxes. This is a great benefit to an LLC over a corporation.

I love the book The E-Myth Revisited. He points out the 3 positions in a company: technician, manager, and entrepreneur. Be sure you and your partner have a clear, written down, understanding of who is doing what.

If you have a SCORE near you check them out. My SCORE advisor had a partner and they were very successful in their business.

Good luck.

gene

[Mike8560]

My bookeeper who  was a former IRS agent. Advised also a LLC Partnership

[byhammerandhand]

I used to listen to a national call-in radio show that discussed all sorts of issues like this.

The host always advised to sit down with a pad of paper.  On the left side write down all the possible horror scenarios.  On the right side what you would do to handle them. 

For example, do you really want to be the partner of the widow/widower/heir children of your partner.

What if one of you call a call from mega-corp and wants out?

What if you start to run short of money?

What if your partner gets hit by a bus and is out of commission for months / years /forever.

What if one of you puts in 30 hours a week and the other 80?  What if one does all the sales work and less of the production work?

[Mojo]

I have incorporated dozens of corporations over the years. Some for myself and some for clients.

Like Gene said you need to make sure everything is in writing. No verbal agreements.

Secondly, you have two choices 1. Form a LLC - or - 2.) Form a Subchapter S corp. Under both arrangements
all profits and losses pass down to your personal income taxes. If you have business write off's then you can claim them on Schedule C of your personal income taxes. I currently have a Sub Chapter S corp.

One other thing, your going to need to keep impeccable records and establish a bank account for your business. You cannot co-mingle funds from your personal account or the business account. Keep everything separate so in the event of an audit you wont have an IRS agent who will screw you around.

Speaking of audits, I have encountered three of them in my life. One on a State level and two at the federal level. All three times it was record keeping that saved my ass. I just completed my last audit this spring. It was a bad one that went on for over a year and resulted in a IRS lien being put on our house. I made an error on my return that resulted in them billing me for 1.2 million dollars. In the end the mistake was found and it cost me $ 350. Whew. But it took over a year to get it settled. During that time reams of paper work was going back and forth between them and me. It took a year off my life I am sure.

Do NOT attempt a partnership without everything in writing and forming an LLC or Sub Chap S corp.

I cannot stress how important it is to make sure everything is in writing and to keep accurate records.

Chris

[Mojo]

Opp's. One more thing.

You do not need a lawyer to form a corporation or LLC. A good CPA can do that for you and is better at it then most lawyers.

You can use the attorney to look over the final documents if you want.

Chris