How to create an LLC with a Partner

[jlovato]

Hey,
I am fairly new to the REI world and I had some questions I hope someone could answer.
I have decided I am going to have a partner with my RE business. He is a good friend and co-worker at my JOB.

We are trying to find the best option for us in regards to personal protection and tax benefits.
Our goal is to wholesale all types of properties and rehab some as well. In the coming years we will have some long term properties but that is not our goal for a couple of years.

We have agreed we want to set up everything to be as equal as possible.
We both have our families and want to set up our RE business so they will not be liable for anything but also want them to benefit from it. Of course we would like to not be personal liable for anything, or at least try.

So is an LLC the way to go? What do you think would be the best option for us? We plan on growing and earning some good money but want to set up everything right before we take action. Thanks for the help.

[BLL]

The only way you won't be personally liable for the business is to let someone else make all the decisions and do all the work. As an LLC member, you will get sued if anything happens. As an LLC manager, you will get sued if anything happens. As an LLC member-manager, you will get sued if anything happens. As the person doing the work, you will get sued if anything happens. Rest assured you will be personally liable if your personal actions caused an injury regardless of any entity you have. You can also be held personally liable for failure to properly supervise your workers or agents.

An LLC is a good way to go because some states don't make you personally responsible for your partner's bad acts. If yours is not such state, make sure the operating agreement indemnifies you. Without an entity, you have a general partnership, where you are personally liable for partnership debts. Don't forget to make sure your operating agreement spells out everything, including how to end it.

When families are involved, my personal preference is to have a trust for the benefit of the kids own the LLC and the parents run the LLC as managers.

[matt909]

You'll need to meet with an attorney and draft an operating agreement before you file for the LLC.  Filing it doesn't make a difference and you don't need an OA to form an LLC, you need one to CYA.  Get legal counsel for partnerships.