J-rap Posted July 19, 2017 Share Posted July 19, 2017 My dd and I are starting a small business together. Several people have told us how much easier it is to run a small (and this is very small, and seasonal) business as a sole proprietorship. However, we really will be partners, although loosely -- the percentage will change from year to year, with her taking on more and more of it as she is able. Someday it might be all hers, with me just helping as needed. Is it really much more of a hassle to run it as a partnership? Otherwise, I suppose I could of course just run it as a sole proprietorship and pay her. (Or she could run it and pay me.) Does anyone have experience with this? 1 Quote Link to comment Share on other sites More sharing options...
Bootsie Posted July 19, 2017 Share Posted July 19, 2017 Will any debt be taken on by the business? Will a significant amount of capital be placed in the business? These things impact the risk that each partner would be taking on if it is a partnership. Quote Link to comment Share on other sites More sharing options...
J-rap Posted July 19, 2017 Author Share Posted July 19, 2017 (edited) Will any debt be taken on by the business? Will a significant amount of capital be placed in the business? These things impact the risk that each partner would be taking on if it is a partnership. Very small, and we know for sure that all debt will be earned back by the end of the summer. It will probably mean that we won't actually make much this year, but we will not owe anything. After that, the debt we take on will be much smaller because equipment will be purchased. Edited July 19, 2017 by J-rap Quote Link to comment Share on other sites More sharing options...
lauraw4321 Posted July 19, 2017 Share Posted July 19, 2017 Go see a lawyer. 3 Quote Link to comment Share on other sites More sharing options...
Guest Posted July 19, 2017 Share Posted July 19, 2017 Sole proprietorship or LLC. Partnerships don't have a lot of benefits for the paperwork. Heck, even an S-corp is an improvement if you two want almost equal shares and titles. Quote Link to comment Share on other sites More sharing options...
Bootsie Posted July 19, 2017 Share Posted July 19, 2017 Very small, and we know for sure that all debt will be earned back by the end of the summer. It will probably mean that we won't actually make much this year, but we will not owe anything. After that, the debt we take on will be much smaller because equipment will be purchased. If you are taking on some debt, how is this being done? A bank loan? This is an important question because it determines who is legally responsible for the debt. If it is a very small business, without much capital involved, it would probably not be worth the trouble and expense of forming a partnership. Can you run this a two sole proprietorships? Quote Link to comment Share on other sites More sharing options...
J-rap Posted July 19, 2017 Author Share Posted July 19, 2017 (edited) If you are taking on some debt, how is this being done? A bank loan? This is an important question because it determines who is legally responsible for the debt. If it is a very small business, without much capital involved, it would probably not be worth the trouble and expense of forming a partnership. Can you run this a two sole proprietorships? I'll be taking on the debt, since I'm in a better position to do so. I didn't know you could do two sole proprietorships. That would be legal to do for the same company? I mean, it isn't even a company yet, but will appear as one company. Edited July 19, 2017 by J-rap Quote Link to comment Share on other sites More sharing options...
MommyLiberty5013 Posted July 19, 2017 Share Posted July 19, 2017 All businesses have tax IDs. If you're a sole prop, you can't have a partner technically because the tax ID is your own SS number. Also in a sole prop you are personally liable meaning if you're sued, they can get your personal assets. What you want is to incorporate your biz and list the officers as you and DD. The biz has its own tax ID. To do this you need to get a tax ID number and you need to draw up Articles of Incorporation. You do not have to be massive to be a corporation it's just a structure. 3 Quote Link to comment Share on other sites More sharing options...
Lanny Posted July 19, 2017 Share Posted July 19, 2017 Possibly a Partnership will be OK, with a Mother and Daughter, but in general, they tend to lead to enemies. GL with your new business! 1 Quote Link to comment Share on other sites More sharing options...
Bootsie Posted July 19, 2017 Share Posted July 19, 2017 I'll be taking on the debt, since I'm in a better position to do so. I didn't know you could do two sole proprietorships. That would be legal to do for the same company? I mean, it isn't even a company yet, but will appear as one company. If it is a sole proprietorship, you and the company are one entity. Any debt of "the company" is your personal debt. Anyone who sues the company is suing your personally. (depending on the nature of the business this could be a major or a minor concern). If you form a partnership, both partners are fully responsible for the debt of the partnership (not each of you responsible for 50%). If you are a sole proprietorship, any profits of the business are taxed to you individually. If you then pay your daughter as an employee, that is an expense of your business and wage income to her (this gets into withholding, social security taxes, perhaps unemp taxes etc for you). There may be a way for you to have a sole proprietorship and you enter into some type of contract. For example, if you are purchasing a sewing machine to start your own company, the sewing machine would be an asset for you and the cost of the sewing machine would be an expense of your business. You could then rent the machine for a certain amount to your daughter who could use it in her sole proprietorship. 3 Quote Link to comment Share on other sites More sharing options...
MommyLiberty5013 Posted July 19, 2017 Share Posted July 19, 2017 I'll be taking on the debt, since I'm in a better position to do so. I didn't know you could do two sole proprietorships. That would be legal to do for the same company? I mean, it isn't even a company yet, but will appear as one company. Again, tax ID. Your one company can only have one tax ID associated with it. If it's a sole (meaning one owner) prop the tax ID is that owner's SS number. If you want to have two full owners and one business, you do a partnership and you could incorporate in some way. 2 Quote Link to comment Share on other sites More sharing options...
trulycrabby Posted July 19, 2017 Share Posted July 19, 2017 (edited) I am a business owner, and strongly advise that you and your partner obtain articles of incorporation or LLC for the reasons jdahlquist stated. Edited July 19, 2017 by trulycrabby 3 Quote Link to comment Share on other sites More sharing options...
Carrie12345 Posted July 19, 2017 Share Posted July 19, 2017 LLC 1 Quote Link to comment Share on other sites More sharing options...
SereneHome Posted July 19, 2017 Share Posted July 19, 2017 Each entity has it's advantages and disadvantages. Some are more expensive to form than others, some guard better against liability. There are also Joint Venture and LLP to consider 2 Quote Link to comment Share on other sites More sharing options...
Crimson Wife Posted July 20, 2017 Share Posted July 20, 2017 LLC's can be a real pain to deal with from a paperwork standpoint depending on your state. My DH had one incorporated in DE (using his parents' address) and it was no big deal. But as soon as he used it to do consulting work in CA, it became a HUGE hassle. He had to pay an $800 fee to register with the state even though he'd already paid DE a registration fee and he was paying state income tax on the passed-through profits. There was all sorts of other red tape involved and it got to be such a headache that he closed it down entirely. 1 Quote Link to comment Share on other sites More sharing options...
SereneHome Posted July 20, 2017 Share Posted July 20, 2017 LLC's can be a real pain to deal with from a paperwork standpoint depending on your state. My DH had one incorporated in DE (using his parents' address) and it was no big deal. But as soon as he used it to do consulting work in CA, it became a HUGE hassle. He had to pay an $800 fee to register with the state even though he'd already paid DE a registration fee and he was paying state income tax on the passed-through profits. There was all sorts of other red tape involved and it got to be such a headache that he closed it down entirely. That is so so true. Also, LLC are really not suited for all kinds of businesses. They are truly best for RE investing. And despite popular belief there ARE times when owners of LLC can be personally liable. Not often, but it has happened. 1 Quote Link to comment Share on other sites More sharing options...
Anne Posted July 20, 2017 Share Posted July 20, 2017 See a lawyer. Really. Going into business together has a high potential to damage your relationship. The best way to help prevent that is to put things in writing and make sure you both understand all the ins & outs. Signed, Someone whose dh has been in a long term business partnership (Anne) 1 Quote Link to comment Share on other sites More sharing options...
J-rap Posted July 20, 2017 Author Share Posted July 20, 2017 Thanks so much everyone! You have given me some good food for thought. It sounds like there are pros and cons either way. Of course I had hoped it would be a simple, obvious decision! :) But, we have some time to think it through, and at least I have a better understanding of the various issues and questions we need to be asking. I have an appointment with our family accountant later this week, so I'll be discussing it with him as well. 1 Quote Link to comment Share on other sites More sharing options...
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