So my buddy and I want to start a small woodworking shop. We're both putting in about the same money and effort. I keep reading that an LLC is safer, but a partnership seems simpler and cheaper. We're not planning to have employees for at least a year. Anyone been through this? I don't want to screw us over with the wrong choice.
LLC vs Partnership
I'm thinking about going into business with a friend and can't decide between an llc and a partnership
LLC all day. Partnership means you're personally on the hook if something goes wrong. Unless you both have zero assets, don't risk it.
Cheaper upfront? Sure. But one lawsuit and you'll wish you'd spent the extra couple hundred bucks to file as an LLC. Just my two cents.
I've been in a partnership for 6 years. It works because we have a solid operating agreement. You can do that with an LLC too, but don't skip the agreement no matter what you pick.
Honestly, the difference in paperwork isn't that huge. LLC costs a bit more to file but you save on taxes if you elect S-corp later. Partnership taxes can be a headache with self-employment.
Wait, are you two going to be 50/50? Because if so, you need to think about deadlock. What happens when you disagree? LLC or partnership, you need a tiebreaker clause.
Yeah 50/50. And we haven't talked about what happens if one of us wants out. That's probably a bigger issue than the entity type.
See, that's the real trap. My cousin and his friend opened a bar as a partnership, then one wanted to sell. Messy. They ended up dissolving and reforming as an LLC. Total waste.
Carla's right. Also, partnerships can be formed with just a handshake in some states, but that's a terrible idea. Write it down.
I skimmed most of this but just do an LLC. It's not that hard. Google your state's Secretary of State site.
Not to derail, but what kind of woodworking? I'm a hobbyist and always curious.
Rick, that's not helpful. Anyway, Dave, look into a multi-member LLC. It's taxed like a partnership by default but gives you liability protection. Best of both worlds.
Carla's right about the tax part. But don't forget you still have to file an annual report and pay fees in most states. Partnership might just be an EIN and done.
We're making custom furniture. Small scale. And I'll look into the multi-member LLC thing. Sounds like the consensus is LLC plus a solid operating agreement, not just a partnership.
One more thing: if you're both contributing tools and equipment, get those valued in writing. Doesn't matter what entity you pick if you fight over who owns the table saw.
Custom furniture sounds awesome. Good luck. And yeah, get the agreement notarized.