Forming an LLC?

Me and my partner are forming an LLC. I was wondering what is the best way to setup the payout of our profits?

First, congrats on moving your business to the next level. Setting up a legal entity like that is really important in order to keep growing.

Are you sure that an LLC is the best way to go, though? Depending on how your business is structured, there are other structures that might work better, which dovetails into my next point:

I strongly suggest talking to an accountant. Trying to handle everything yourself can be more trouble than it is worth.

That said, in an LLC, IIRC, the profit "flows through" the company structure, and to the partners. This means that the LLC does not "make" money, and does not pay taxes. You and your partner need to have an agreement that specifies how the profits are distributed.

I like regular incorporation, because even though the business owes taxes as well, in practical terms you can keep its profits so low as to not have to worry about that.

Again, though, I can't stress enough how important it is to get some expert advice from either an accountant or someone who knows the ropes. Once they understand what your goals are, they can give you targeted advice for how to minimize your tax burden and liability, and making it easy to focus on the business.

Thanks,

What is the paperwork for the agrrement and where does it need to be filed besides the articles of incorporation? As far as payment goes do I need to issue payments by check through our bank account?

I'm not an expert when it comes to an LLC, but that is typically called an "Operating Agreement" and it may or may not be required depending on which state the LLC is formed in, but is a good idea to have no matter what.

The agreement probably does not need to be filed with any agency, but must be signed and held by all owners. Basically the agreement says how much everyone owns, which determines how much of the profits they are entitled to and how much of the losses as well. It also covers each owner's responsibilities to the company.

Again, though, these rules change from state to state! You really need to talk to a proper expert to get the right setup for what you want to do.

IMHO, you are going to pay more taxes, and have more liability with an LLC most of the time.

thanks,

I spoke with a tax attorney. I will probably hire him

Awesome!

The reason that I am so big on talking to an expert is because I made a mistake many years ago, and screwed myself big time because a company was not set up right. I consider it tuition, but I didn't need to go to such an expensive school, if you know what I mean.

Best of luck to you and your partner.