How do I construct my Parnerhsip

3 replies [Last post]
grigwealth's picture
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Joined: 2009-03-07

Hello, <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
 
 
 
                   I left Edward Jones now about 8 months and have established my independent practice with Next Financial.  I have two more Brokers who will be Joining me shortley.  How should I arrange the Partnership.   What are the Pros and Cons of us proceeding with this idea.  I realize that this very well may be a short partnership so how can we work together and benefit in the shortrun.  Do we really benefit going forward.  I need help and will even call somebody they are willing to lend some good Ideas.  Thank you all
 

Northfield's picture
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Joined: 2007-04-10

You need to sit with a lawyer to sketch out some ideas, but what I would envision is a Partnership LLC with each partner owning 1/3, and each partner would contribute capital each month to cover the overhead expenses.
 
Underneath that Partnership LLC each partner would likely have their own LLC that the $ from Next would flow into. In other words you're only "partners" in sharing the overhead responsibilities and costs, but your individual practices stay separate.
 
This way you avoid disagreements wbout ownership percentages until the practice has been established awhile.
 
If desired, ultimately the Partnership LLC could become more of a true partnership.

grigwealth's picture
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Joined: 2009-03-07

Thank you for sharing that that definatley shed some light

stefany_t's picture
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Joined: 2009-01-10

Grigwealth,

If you think that the relationship you will have with the other 2 partners is going to be temporary, then you should not get into a legal partnership with them. And by definition, partners in a partnership share both profits and expenses equally. This idea will not work unless each of you are making the same amount of money. Do you really want to split your money with someone who may be making half of what you make? You have to ask yourself this question.

I would suggest that each of you set up an LLC, like Northfield suggested above. And then perhaps the best thing to do is to split all expenses evenly and each member pay his/her share into a Shared Fund set aside for shared expenses. But the key is that you want your expenses to offset your income, so you need to pay the expenses from your LLC into the Shared Fund. This will reduce self-employment taxes. One partner, or an office manager or trusted assistant should be in charge of managing the arrangement and paying the shared expenses such as rent, phone, office supplies, etc. You would have to decide amongst yourselves who would be best suited to manage the group and then perhaps compensate that one person accordingly.

As I am sure you know, FINRA does not allow us to deposit commissions into a business account; it must be deposited into a personal account. So you should set up a personal checking account for the sole purpose of receiving the direct deposits from Next and then at the same bank, set up your business checking account for your LLC. You can then transfer funds from the personal to the Business account after you get paid each Friday, or whenever you choose. But it is important to pay expenses from your LLC and not from your personal checking account. The IRS is very picky about those sort of things.

Northfield really does have the right idea, except for the Partnership LLC. I think that it would be unwise to form an active partnership to just pay expenses. You have to pay for the incorporation costs, you have to file a tax return each year, you have to name it, if a partner leaves you have to figure out partnership interests, and it is just one more set of books to keep separate. You can do the same thing that he suggests above, but with one less step. You can manage splitting all the expenses without the use of a legal partnership. You can do it all through your LLC and then, if all three of you are going to hold yourselves out to the public as a group, then you can form a dba (a non-taxable entity) to do business under.

I hope this information is useful, but I would actually need more information about your situation to help you further.

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