9/16/2020
I feel that there should be a LLP formed, if we are to proceed on this project, for some important reasoning which is outlined in the text below. Since, I will be the partner on site, I will be managing daily and this is described as the "General Partner," and you will be referred to as the "Limited Partner." Then I, not you, will be held legally to be making good financial decision. The business failure or success is more on my head, but you must be consulted on every step. (And, you know we can disagree but I never go forward will out everyone being in agreement. (Remember the house on Sherland and Walker Dr.) OKay? This is very important to protect you from a bad financial decisions about a purchase made for the property. OKay? I think most people that have had a partnership will do it this way, if they were in your situation in California and I my going to Wisconsin to get things done. You know I am much more keen on this then even Marie is.
Source: https://www.legalzoom.com/articles/difference-between-llc-and-llp
Before registering your startup as a limited liability company (LLC) or a limited liability partnership (LLP) you should understand the full implications of each.
LLP Defined
What is an LLP? An LLP is a general partnership formed by two or more owners (called partners). Similar to an LLC, an LLP is a cross between a corporation and a partnership, with the partners enjoying some limited personal liability. Professional businesses are commonly organized as an LLP.
There is one significant difference between LLP and LLC. An LLP must have a managing partner that is liable for the actions of the partnership. As long as silent partners and investors don’t assume a managerial role, they receive liability protection.
About 40 states allow the formation of an LLP, and the laws vary by state. Some states limit what professions can form an LLP, so check your state statutes.
If your business plans to operate in multiple states, check the state’s statutes to ensure the state recognizes a foreign LLP (an LLP formed in another state).
For example, a state that limits what professions can form an LLP may not recognize an LLP from a state that doesn’t and this can have personal liability repercussions.
What Are the Differences in Management Structures?
There are two common management structures for an LLC. LLC members can manage the business themselves (commonly referred to as member management). Alternately they can hire or appoint one or more members and/or non-members to manage the business (commonly referred to as manager management).
Unlike a member management structure where each member shares responsibility for running the business, the management team runs the business under a manager management structure and the remaining members aren’t involved in business decisions.
An LLP operates like a general business partnership, where management duties are equally divided between partners. A partnership agreement should set out how business decisions will be made.
Source: https://www.delawareinc.com/blog/general-partnership-vs-limited-partnership/
When entering into a partnership with a company or another individual, it is important to know exactly what your roles, duties, and liabilities will be. When it comes to the two common types of partnerships that often get confused – general partnerships and limited partnerships – there are some key differences that will impact how each partner participates in the company.
General Partnerships
A general partnership is the most common type of partnership. It refers to a relationship in which all partners contribute to the day-to-day management of the business. Each partner will have the authority to make business decisions and even legally bind the company in contracts.
The liabilities, contributions, and responsibilities of the partners are often equal unless stated otherwise. Typically, a partnership agreement will describe which partners have certain authorities and responsibilities.
Limited Partnerships
A limited partnership is a relationship where one or more partners are not involved in the day-to-day management of the business. Often, a limited partner, sometimes known as a “silent partner,” will serve solely as an investor in the business, with the funds that they contribute being the extent of their liability. However, since the limited partner does not have decision-making power in the company, withdrawing funds – even just the amount they’ve already contributed – cannot be done without the approval of a general partner.
Limited partnerships will still have at least one general partner to man the day-to-day operations of the business. A general partner may invest money into the company. However, a general partner may also be personally liable for the debts of the company, while the limited partner is not. Only a general partner’s personal assets (in addition to the business assets) can come into play when it comes to paying off the company’s debts.
A common purpose of a limited partnership is for real estate. There may be several limited partners for the purpose of raising additional funds to purchase the real estate, as long as there is at least one general partner. The benefit of being a limited partner is so your liability is limited, while the downside is that a limited partner will not have the decision-making powers that a general partner would.
Similarly, limited partnerships are an extremely popular choice for private equity firms, which purchase privately-owned companies in the hopes of increasing their value. Often, the private equity company’s name is not particularly well-known compared to the companies it invests in. For example, the Roark Capital Group is a large private equity firm and limited partnership that has invested in companies such as Arby’s, Jamba Juice, Sonic, Maaco and Meineke.
There have been cases where a limited partner has unintentionally given up his limited liability status by being too involved in the organization’s management. This determination can be made by a court if a lawsuit is filed alleging that the limited partner has participated in the day-to-day activities.
Source: https://gusto.com/blog/start-business/business-partnership-definition
TABLE: Comparing the 4 partnership types: LLC vs. LLP vs. LP vs. GP
Whew, we just talked a lot about the differences between the four types of business partnerships.
Here’s a quick chart that summarizes these comparisons. Keep in mind that rules may vary depending on your state.
How are business partnerships taxed?
A multi-member LLC, LLP, and LP are not recognized as taxable entities by the IRS and therefore are automatically taxed like a general partnership.
All four partnerships are pass-through entities, which means that the profits are passed on to the partners’ tax return. The business doesn’t pay taxes, but the partners do. The amount of profit allocated to each partner is determined by a partnership agreement.
At tax time, the partnership files:
Form 1065: U.S. Return of Partnership Income, where it reports its total income, expenses, and profit or losses.
Schedule K-1 for each partner, reporting their share of the income or losses. This information is used on the partner’s personal tax return.
Partners pay two types of taxes on the income reported on the K-1: self-employment tax and income tax. Self-employment tax is 15.3 percent and generally applies to 92.35 percent of the partner’s net income. Income tax varies based on the partner’s tax bracket.
The only type of partner that doesn’t pay self-employment tax is the limited partner of an LP. General partners of an LP do pay self-employment tax because they’re involved in the day-to-day decisionmaking. Since limited partners don’t play an active role in daily business operations, their income isn’t considered “earned income” that’s subject to self-employment tax.
Multi-member LLCs, LPs, and general partnerships can choose to be taxed as corporations by submitting IRS Form 8832 to the IRS. Multi-member LLCs can also elect to be taxed as an S corp by submitting IRS Form 2553.
How do I pay myself as a partner?
If you’re a partner, you can pay yourself by taking a portion of the profits your business earns as an owner’s draw. The amount of your draw will be determined by your business’s profits and your partnership agreement, which states how much of the profits each partner is entitled to.
Unless your partnership is taxed as a corporation or S corp, you cannot pay yourself as a W-2 employee.
Keep in mind that partnerships are pass-through entities, which means that even if you don’t take money out of the business, you’re still responsible for paying taxes on your portion of the profit.
Let’s say your partnership has $100,000 in taxable profit at the end of the year. You and your partner each own 50 percent of the business. Your portion of the profit is $50,000. Throughout the year, you only take $25,000 out of the business as a draw.
Are you taxed on the $25,000 you took out or $50,000, which is your share of the profit?
You’re taxed on $50,000 because, as a pass-through entity, you pay taxes on the profit that is allocated to you, not the profit that is distributed to you.
Now that you know the pros and cons of each type of partnership, you’re one step closer to fulfilling your dream of starting a business with your business partner by your side.
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Starting Your Business
Quick note: This is not to be taken as tax advice. Since tax rules change over time and can vary by location and industry, consult a CPA or tax advisor for specific guidance. Find an accountant
Source: 8 Factors That Keep You From Getting a Small Business Loan
For EMERGENCY only purposes! (Not a good business practice, but you need to use credit cards to build credit and keep from fraudulent charges. Damn renting out rooms in Las Vegas)
Poor credit history and low cash flow can prevent small businesses from securing loans.
Before applying for a business loan, make sure your financial documents are in order and that you understand what lenders need from you.
A good business plan makes your business attractive to lenders, giving you a better chance of getting a loan.
- Poor credit history
- Limited cash flow
- Lack of a solid business plan
- Too many loan applications
- Disorganization
- Failure to seek expert advice
- Failure to shop around
- Apathy
What are the different types of business loans?
Depending on your needs, you have many kinds of lending options. Here's a brief overview of the most common types of business loans.
SBA loans
These small business loans are processed by participating lenders – which are often banks – but, because they are guaranteed by the U.S. Small Business Administration, lenders have more confidence in repayment. Even if the borrower defaults on the loan, the lender will still get back up to 85% of its money from the government. The maximum loan amount you can receive for an SBA loan is $5 million. SBA loans are desirable for small businesses because the rates and terms are lower and more lenient than many other options.
Short-term loans
Typically offered by banks and online lenders, short-term loans range from $5,000 to $250,000. They are generally repaid in less than a year. It takes up to two days for borrowers to receive funding from this type of loan.
Long-term business loans
Instead of providing funding for startup costs, long-term loans are meant to help grow established business. They are often not fully repaid for several years, but they have low monthly interest rates. You can generally secure long-term loans of up to $100,000 from banks.
Bad-credit loans
Online or direct alternative lenders are often willing to provide financing options for borrowers with bad credit. With these lenders, your credit score isn't the determining factor for approval. Instead, they consider your cash flow and recent bank statements to determine your eligibility for the loan. While you can typically be approved quickly, you are likely to face high interest rates and/or brief payback periods.
Secured loans
Secured loans require collateral from the borrower, which can be property, vehicles, equipment, stocks or other assets of value. Offered by banks and credit unions, secured loans are often easier for new businesses to get and have lower interest rates than unsecured loans. Loan amounts typically range from $50,000 to $100,000.
Unsecured loans
Unsecured business loans don't require collateral, but because this makes the loan riskier for the lender, interest rates are often higher, and borrowers must have high credit scores to qualify. Unsecured loans are usually offered by online lenders – including peer-to-peer lenders – and by banks and credit unions as personal loans. Loan amounts can go as high as $50,000.
Merchant cash advances
Merchant cash advances are available from dedicated merchant cash advance companies and some credit card processors. It's a loan against your business's future earnings that you repay through a percentage of your credit card sales. It is a fast way of securing funding because it doesn't require collateral, which means quicker turnaround for approval, but interest rates can be very high. It's typically used by retail stores or restaurants. Merchant cash advances can range from $5,000 to $500,000, and repayment terms vary between three and 18 months.
Equipment financing
Equipment financing is a loan from online lenders that you take out to purchase tools or other equipment for your business. It doesn't require a down payment, which helps you preserve your capital and maintain cash flow. The equipment you buy is considered the collateral for this type of loan, which means that if you default on the loan, the equipment you bought will be repossessed. Loan terms range from two to 10 years, and amounts range from $100,000 to $2 million.
Invoice factoring
Invoice factoring is when your company sells its invoices to a factoring company for cash. This helps you maintain cash flow for your business. The factoring company gets paid once your customers pays their balance. Invoice financing helps you avoid cash shortfalls, but it's usually more expensive than other types of funding. It also limits the control and communication you have with your clients. For example, you can't decide how the invoice company collects invoice payments from your customers.
How do you apply for a business loan?
When you apply for small business financing, it's important to understand what information small business lenders need from you so you can gather the appropriate documents. Typically, you will need these documents:
Up to three years of financial statements or tax returns
At least three months of bank statements
Accounts receivable reports
Proof of ownership
Your credit score and history will be taken into consideration, so it's helpful to have good credit, which usually means a score in the range of 690 to 850. Scores below 689 are considered fair credit, and those below 300 are considered bad credit.
Cash flow is another important factor for business lenders, because they want to ensure you have enough revenue and sales to pay them back. Your debt-to-income ratio is also vital – the more debt you have, the more difficult it will be to get approved. For new small business loans, lenders prefer a 1.35 debt-to-income ratio.
Lenders want to see that you have a strong business plan and blueprint for continuous profit, showing them that you can repay the loan. This is especially important if your new business doesn't yet have steady cash flow.
Some lenders will request collateral. As mentioned above, collateral can take many forms – property, vehicles, stocks or any asset of value – but you must understand that if you fail to repay the loan, the lender will keep the assets you pledged.
After you submit your business loan application, depending on the lender and the type of loan, it can take days, weeks or even months to get approved.