My business has in the space of 20 months or so expanded to where I need help. In my case, the best scenario looks like taking on a partner since the #1 guy I am considering I pretty mcuh cannot afford as an employee but as a partner his potential rewards are much better. I have no worries about trust or skills, we have already discussed and agreed to doing this, its now just a matter of how to structure it legally.
Its a computer shop/onsite computer repair provider in CA if it matters.
Doper thoughts on the best way to handle this?
What are the +/- to LLP/LLC over standard liability scenarios.
Obviously, a local attorney is your best source of information.
Generally, though, a limited liability company is popular because it provides the liability protection of a corporation (i.e. it is difficult to sue you personally for company actions, or to reach your personal assets to settle company liabilities) but also offers the “pass through” taxation of a partnership (i.e. you only pay income tax at the personal level, and there is no corporate income tax, as with a corporation).
As with any legal issues, though, your state’s laws may mean YMMV (hence, the local lawyer)
I work in commercial banking and see a lot of LLCs and LLPs (more LLCs).
The part I can speak to is lending. If you plan to do any borrowing, you’ll probably have to personally guarantee any loans or lines of credit (as will your partner). Of course, the same goes for most corps we deal with as well.
I have a business that is owned by 2 of us and it’s an LLC. When we signed the paperwork and stuff, the lawyer had us set it up so that my partner owned 51% and me 49% so that we wouldn’t have to coordinate schedules to sign everything together.
So far life has been easy-peasy as an LLC. We pay regular withholding tax on our paychecks and regular income tax on the business. In the 6 years we’ve been set up, I’ve been able to sign most everything myself (I take care of the money end of things). Uncle Sam does not care that I only own 49% and I sign all the tax documents.
When we sign up for credit cards or lines of credit, our personal credit histories do come in to play. I was able to get our last cards on my credit alone, though. My partner was in the middle of obtaining a mortgage and didn’t want the credit hit - so we put it all under my name and my credit and just assigned him as a authorized user. Previously we had signed up for a Small Business Line of Credit and we did both have to have credit checks.
Also, I recall one time we nearly got into a hassle with taxes and our accountant assured me that if we owed some taxes and the LLC couldn’t come up with the money, we (my partner and I) would be personally responsible for it.
Unfortunate for you and fortunately for me, we haven’t had any money troubles, tax troubles, legal troubles or personal troubles that would give me more insight on the benefits and drawbacks of an LLC to pass along to you.
If you trust Wiki to make Financial and Legal choices you will end up broke and in the electric chair. Just so we are clear. To me LLP’s are what Doctors and Lawyers etc. do and not 2 Computer Tech guys. And Wiki says:
*Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants and architects. In some U.S. states (including California and New York), LLPs can only be formed for such professional uses. *
I think you need a Lawyer but a General Partnership or Incorporating - Including an LLC – is something else to explore. I would also explore whether two Computer Tech guys should be worried about Liability as a first concern rather than Taxes. I would speak to a good expert Lawyer.
When I formed a company our lawyer recommended an LLC. However, I later found out that the primary reason he did this is because he wanted the experience.
My accountant didn’t like the LLC. She said that too many of the tax laws are ambiguous in regards to an LLC. In her opinion a sub chapter S corp had all of the advantages of an LLC without the ambiguity.
I would get opinions from both a lawyer and an accountant if I were going to do it again.