Advantages and Disadvantages of a General Partnership

Continuing my post about the advantages and disadvantages of a sole proprietorship, the next I will detail is a General Partnership.

A general partnership is an agreement between two or more parties in which they agree to share the profits and assets of a business, along with the expenses and liabilities.

In my opinion, the biggest advantage is the ease of start and the biggest disadvantage is the unlimited legal liability of all partners.

When I started my first cleaning company, we went to the local city license office and applied as a partnership.

An attorney can help you prepare your General Partnership Agreements. If you want to prepare your own, I will be creating a template in the future. Most likely you will need a partnership agreement to open a bank account in the name of the partnership.

Advantages

  • A General Partnership is cheap and easy to start. As mentioned above, you only need to apply in your local city or county, there are no State level filings.
  • Income (and losses) are passed through to the partners. This means that partnership income is only taxed once (unlike C Corporations) and losses can be used to offset other income and not carried forward, unless that partner has a Net Operating Loss (NOL) on their personal return.
  • Income, gains and losses can be split be between the partners any way wanted with a partnership agreement, regardless of how much an individual partner invested. Absent a partnership agreement, income, gains and losses are split evenly between partners.
  • The partnership can be converted into another entity type in a tax-free transaction.
  • All partners participate in management and written partner meetings are not required by your State’s SOS.
  • A partner can withdrawal at any time and receive fair value of their partnership interest. A partner can also transfer their interest.

Disadvantages

  • General partners are liable for all obligations of the partnership, even if a different partner entered into a debt agreement without partner consensus. A debtor can sue any or all partners to satisfy the debts, including the personal assets of the partners.
  • You will need to file a separate tax return, Form 1065.
  • On your personal tax return, you will be responsible for self-employment taxes (currently 15.3%) along with taxes on the income and gains. Self-employment taxes are the Employer and Employee portion of Social Security and Medicare. Currently you can deduct half from your AGI in calculating taxable income. This in effect allows you to deduct the employer portion just like an other business could.
  • Since all partners participate in management, all partners can bind the partnership and disagreements can ruin partnerships (or friendships.)
  • All partners must be in agreement for a partner to be able to transfer their interest to another party. Template for a new partner.
  • Partnerships are automatically dissolved if a partner withdrawals, dies or is incapacitated, unless an agreement is in place that specify what would happen in the event of.

A General Partnership is a quick and easy entity type if you have a business you are starting with someone you trust completely and does not come with a lot of legal liability. To be safe, you definitely need a Partnership Agreement. See the bottom of this page for how to order a General Partnership Agreement. If you are a company looking to work with an individual or another company, a Joint Venture Agreement may be what you need.

General Partnership Agreement Template

GENERAL PARTNERSHIP AGREEMENT

of NAME OF COMPANY

 

  DATE:

[xx/xx/xxxx]

 

 

  PARTIES:

[List Names of all partners] (the “Partners”)

AGREEMENTS:

ARTICLE I

FORMATION OF PARTNERSHIP

1.1 Formation. The Partners hereby agree to form a Partnership pursuant to the provisions of the Partnership Act of the State of [State] (the “Act”) and on the terms and conditions set forth in this agreement.

1.2 Name. The name of the Partnership will be [name of partnership].

1.3 Principal Office. The principal office of the Partnership will initially be at [location or where records held], but may be relocated by the Partners at any time.

1.4 Purposes and Powers. The Partnership is formed for the purpose of [description of partnership’s business] and doing all things necessary, incident, or in furtherance of that business.

1.5 Duration. The Partnership is created for no definite term or particular undertaking, as those terms are used in the Act. The Partnership will commence on the date of this agreement and will continue until dissolved as provided in this agreement.

1.6 Title to Assets. Title to the assets of the Partnership will be held in the name of the Partnership. No Partner individually will have any ownership interest or rights in the assets (including those contributed by the Partner) except indirectly by virtue of the Partner’s ownership of an interest in the Partnership. No Partner will have any right to seek or obtain a partition of any asset of the Partnership, and no Partner has the right to any specific assets of the Partnership upon the liquidation of, or any distribution from, the Partnership.

ARTICLE II

PARTNERS, CONTRIBUTIONS AND INTERESTS

2.1 Initial Contributions. The agreed value of the initial capital contributions of each of the Partners and their initial Ownership Interests are as follows:

If you want the entire 11 page General Partnership Agreement in Word format, please checkout below at bottom of the page. The Template is $4.99. You customize to fit your needs. I email every template out myself. You can spend a few hours online getting less comprehensive .pdf versions yourself for free or put this together over about 6 hours yourself, or you can save your time and order a partnership agreement ready to customize to your company.

You can also consult with your attorney. I am an affiliate for LegalShield.

All transactions go through PayPal, I never have access to your credit card. I will email the partnership agreement to the email address listed by PayPal within 24 hours, or I will refund your money (and still give you the partnership agreement.) Make sure your email is up-to-date.

Once you start your partnership, I would love to prepare your taxes. Reach out through this website or ValdostaCPA at Yahoo dotcom. Fees start at $250 for a 1040 and $750 for a Form 1065.

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Joint Venture Agreement Form

A joint venture agreement is a partnership between two or more companies to undertake a business venture together. It forms its own corporation, limited liability company or partnership specifically for the joint venture. This allows the companies to have separate legal status while working together. Each Venturer receives the profits and is responsible for the losses of the joint venture.

Joint venture agreements can be short term or long term depending on the nature of the agreement. While similar to a partnership, joint ventures are not partnerships because they involve companies instead of individuals.

You need a joint venture agreement (see below) so that the terms are legally documented and your legal interests are protected throughout the partnership.

This post contains affiliate links.

Why Form a Joint Venture?

There are multiple reasons companies would want to form a joint venture. Many times it has to do with either company having something the other desires to advance their business. One person may have a large customer list and another person may want to market a product to that list. Drug companies (i.e. Pfizer) commonly form joint ventures.

Another common joint venture is in real estate. Two or more companies may form a joint venture to handle the building of a new section of property. One may specialize in financing and the legal side of the property, while the others focus on the contractor work itself and managing the construction site. This allows all of the companies to make best use of their expertise while coming out ahead together.

Combing resources and entering new markets are other common reasons to enter a joint venture.

Joint Venture Form Template

Below is an excerpt of a Joint Venture Template. If this is what you are looking for, checkout is below. All transactions go through PayPal, I never have access to your credit card information.

I email out each Word document that is customizable to fit your needs individually for just $4.99. Follow the “Add to Cart” button at the bottom of this post.

I will email to the address used for PayPal (so make sure it’s updated) within 24 hours, or the form is free! The form is 7 pages long. You can create this yourself spending a few hours researching online; however, I figure your time is worth more than $2.00 per hour.

JOINT VENTURE AGREEMENT

  DATE: XX/XX/XXXX
   
  PARTIES: Company 1, a corporation organized under the laws of the state of STATE (“Company 1”)
   
  Company 2, a corporation organized under the laws of the state of STATE (“Company 2”)

SECTION 1. FORMATION OF JOINT VENTURE

1. Organization. Company 1 and Company 2 (the “Joint Venturers”) agree to form a joint venture (the “Joint Venture”) on the terms and conditions set forth in this agreement.

2. Name. The name of the Joint Venture will be NAME.

3. Place of Business. The principal office of the Joint Venture will be at ADDRESS.

4. Term. The term of the Joint Venture will commence on the date of this agreement and will terminate on xx/xx/xxxx unless terminated earlier under the provisions of this agreement.

5. Purpose. The purpose of the Joint Venture is to (STATE PURPOSE.)

6. Assets. Title to assets of the Joint Venture will be held in the name of the Joint Venture and, except as otherwise provided in this agreement, no Joint Venturer has any right to those assets or any ownership interest in them except indirectly as a result of the Joint Venturer’s ownership of an interest in the Joint Venture. Assets of the Joint Venture may not be commingled with those of a Joint Venturer or any other person. Assets belonging to a Joint Venturer that have not been transferred to the Joint Venture will remain the assets of the Joint Venturer and will not be considered assets of the Joint Venture despite the fact the Joint Venturer uses the assets in performing its obligations under this agreement.

7. Capital Contributions and Percentage of Interests. Each of the Joint Venturers agrees to contribute $XXto the Joint Venture. Company 1 will contribute this amount in (cash, transferred property, etc.) Company 2 will (same format.) (See Note below if transferred assets and insert here.) The contributions of both Joint Venturers must be made promptly following the signing of this agreement.

Tax Preparation

If you need taxes prepared next year for your new venture or personally, email me (ValdostaCPA at Yahoo dot Com) for a specific quote. A Joint Venture will most likely be on a Form 1065 or 1120. My cost starts at $750 for those forms, but most businesses will be less than $1,600.

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I’M (KINDA) RETIRING

I have given my notice, my last official day of full time work is scheduled to be April 29th. I’m 44 years old.

How can I retire so young? Am I rich or from a wealthy family? The answer is no. I am financially independent and live a very simple lifestyle. Plus my wife, 42, will probably continue to work until she’s 60 and eligible to receive her pension.

I will give step-by-step how I gained financial independence at the bottom of the post.

Financial independence just means I do not have to rely on a job to meet my basic needs. My basic expenses are about $2,100 per month. This includes $800 in car loans which will be paid off soon. I make about $21,000 in interest and dividends annually, so I’m only short about $4,000 per year.

I do understand that unexpected things come up, like the $2,600 in car repairs I have this month on my wife’s 6 year old car. I do not want to pull from savings, so I will work enough to make sure I meet basic income needs.

Using a basic financial calculator , I will exceed my savings goal at age 66 using a 6% return and investing nothing else. I don’t want to continue working 50 plus hour weeks anymore, when I don’t have to.

My plan is to work enough to earn $2,900 per month. This will cover basic expenses, have enough for a little travel and dates, and the unexpected things that come up.

I can’t really use interest and dividends, 75% of my savings is in retirement accounts. So I want to develop three equal income sources.

First – Part time job. I already have this lined up, starting May 2nd. I will only work a few days per week.

Second – Writing. This is a passion, but I’m not really that good at it. Maybe I’m too analytical and not creative enough. I have written a fiction book, a finance book, two accounting books and two CPA study guides. The CPA study guides are the best sellers by far, so that is where I will start to concentrate.

Third – Tax preparation. I did pretty good with this on the side before, but let go of all my clients while working for a Big 4 firm. I will need to start over, but earn the highest hourly rate with this source.

Steps to How I Gained Financial Independence at Age 44

  1. My grandmother started me in Dividend Reinvestment when I was a freshman in high school. She bought me 1 share of PepsiCo (PEP), which later spun-off YUM brands. She put $10 for every A and $5 for every B I made on my report cards. I graduated with a 3.2 GPA, so not stellar, but a decent start.
  2. I went to college and graduated debt-free in 2000. I went to a State college and had the Hope Scholarship. I worked approximately 30 hours per week while in college. College was less costly 20 years ago, approximately $3,000 per year in tuition costs. I came out of college earning $32,000 per year.
  3. I got married a week after graduating college. I married the right person (we have been married almost 22 years.) Divorce is expensive. I also married someone that is OK with a simple lifestyle.
  4. I started a 401(k) and also purchased company stock at a 10% discount at my first job. I also invested $50 per month in DRIP (Dividend Reinvestment) stocks.
  5. In 2002 at age 25, I started a side hustle, my janitorial company. I did it for 19 years. It carried me through a career change, allowed me to save down payments for our house and investment properties, and build my retirement savings. I earned anywhere from $7,500 to $70,0000 per year on this side business. The downside was I could never take a week long vacation. The bulk of my savings over my life came from this source. At age 25, I was socking away over $1,500 in savings from that business, plus putting 10% in a 401(k).
  6. We bought our house in 2004 for $106,500. We still own today, paid off in 2022. The house is work about $170k now, but I have no intentions of selling.
  7. I started an IRA and taxable stock account with Scottrade in 2007. I maxed out the IRA every year until my income became too high in 2020.
  8. In 2008 I left a sales job and went back to school. I was earning a little less than $30,000 in the janitorial company, so I lived within my means. My wife worked PT at a local church’s school. I paid for college out of pocket from savings. The tuition had increased from $1,5000 to $4,500 Per semester in those eight years.
  9. In 2010 I started my career in accounting. I earned $48,000 per year as an audit manager, my wife was making about $3,000 per year. I saved 15% of my salary in the 401(k). I was bringing in over $1,700 per month in the side business and saved al of those earnings. I also bought a rental house that year.
  10. In 2012, I took a less stressful job with the State of Georgia. I also sold the rental house for a loss. I earned a really good capitalization rate, but working with tenants was exhausting. I saved 10% of my income in the State’s retirement plan.
  11. My wife started college in 2013 and I left the State (75 minute one-way commute daily) to watch our daughters. I was down to my last cleaning account at that time, so the income was $7,500 per year. I worked seasonally as an auditor and tax preparer, earning about $30,000. I also became a CPA.
  12. In 2015 I started my own CPA firm and did that until June 2018 when I started FT work again. I only earned about $30,000 per year, just enough to cover expenses. My wife started teaching in 2016, earning a little over $33K per year.
  13. In 2018 I went back to work as a Finance Director for a nonprofit. I earned $65,000 per year, but over $100,000 with side businesses. My wife was up to about $37K. I contributed $1,500 per month to the 401(k).
  14. In 2020, I took a position with the Federal Government for $95K. I also did the side businesses and together we earned over $170K. In 2020 and 2021, I maxed my TSP and saved $50-80K those years.
  15. In January 2022 I took a position with a Big-4 firm, with a base of $150,000. I had to drop my side businesses and sell a lot of my positions. My wife is earning about $42K. I saved a little over $21K in the first quarter of this year. I decided I did not love working for a Big-4 firm. I will be going back to the nonprofit PT that I left in 2020.

Summary in Order of Importance

  • Live within your means. Even though we have earned over $200,000, our expenses never exceeded $60,000
  • Marry the right person
  • Go to a low cost college and get a marketable degree
  • Invest regularly, always taking advantage of tax-deferred company plans and saving at least 10%.
  • Use a side hustle to boost savings or reduce debt

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Best Retirement Savings Strategy

Have you heard the saying the best exercise for 6-pack abs is broccoli?

It’s the same for retirement.

The best retirement savings strategy is making more money.

This post contains affiliate links

I know that’s not skipping lattes, snowballing debt, using other people’s money and other popular savings strategies, but it doesn’t require excessive scrimping or significant risk.

My savings goal at age 66 is $2,500,000. Assuming a 6% compounded rate, I have already saved enough to get to my goal. The last several years, I have saved $30,000 to $50,000 annually. It made things considerably easier to save with a $150,000 salary than in 2013 when I was earning $40,000.

Now I have options. At the end of the month I plan on leaving the stress of a Big 4 firm and working just enough to cover basic expenses.

Excuse: If I were making $100,000 it would be even easier.

To make the best use of this strategy, you do need to know the difference between needs and wants. You can still get the wants, but prioritize experiences over things. If you buy a thing, you will just want the next new thing.

Some examples of wants that I didn’t need, and what I have instead:

  • I would love an iPhoneX, but instead I paid $160 for a new iPhone 7 last year, and I will keep as long as it works. I use SmartTalk for $44.64 per month, unlimited everything (except internet is metered after 2Gb.)
  • I could afford a new vehicle (i.e. F-150), but instead I bought a 2 year old Hyundai car in 2015 and drove until 2020. When Covid happened, I did buy that F-150 and financed $30,000 at 0.9%.
  • Our family could afford a $500,000 house, but instead live in the same house we bought in 2004 for $106,000. Even now, the house is only worth $168,000. But I paid off this year.
  • I would love cable, but instead we have a $35 digital antenna, Prime and Netflix. Total cost of approximately $30 per month versus $95.

When cutting costs, concentrate on the higher cost items like housing and transportation. I wouldn’t cut a grocery budget, but eat out less instead. You want to stay healthy enough to continue enjoying your savings when you’re older.

The list goes on and on. We are a family of six with job incomes of right at $200,000 combined. The combined income is about to drop to $75,000 though. I do all of the savings, 33% of my income. My wife does not save, except a forced savings through Teachers Retirement System. It’s not that she can’t save, it’s just we don’t need to save more. Excessive savings could take some of the joy out of life.

Our total necessary expenses are about $4,100 per month. My wife earns approximately $2,400 after tax, TRS contribution and insurance. She covers groceries with that, and most activities the girls participate in. I have covered everything else and will continue to earn enough so that doesn’t change.

The wants are mostly activities for the girls, which are about $1,000 per month. I typically use side income for vacations, but we don’t take too many large ones. Last year we did a 10 day road trip to Niagara Falls and a 5 day trip to New Orleans. Everything else is day or overnight trips.

How to increase your income so you can save more

The first thing you can do is ask for a raise. Ramit Sethi talks about that in his book and blogs. I am in management and know how expensive it is to replace a trained employee. It’s risky letting good employees go, so do not be afraid to ask for more compensation.

Having said that, you need to be worth it. I have always had the mindset to do the work of the position you want, not the one you have. Be valuable to your employer and you will be valued and paid accordingly.

If you have been doing the bare minimum for a while, take six months to step up and keep a list of “wins” to take to your boss when you’re ready to ask.

The next thing you can do is start a business. I don’t mean a full time business, which is a great strategy, but a part time one instead. Start part time when you don’t need the extra money and reinvest in yourself, business or savings. As revenues grow, you can go full time.

I do exactly that, but I do not have plans on growing my service-based businesses. Some of the things I do to earn extra money are clean an office building, prepare financial statements and tax returns, eBay and writing.

You can look at my posts under the “Make Money” header for ways I generate income. The one that I made the most in was the cleaning business. My one client paid $1,600 per month. My expenses are less than 15% since I do all the work myself, taking an average of 5 and a half hours per week.

Alternatively, growing a business is a great retirement strategy to use in a cash out event. Grow your business and when you are close to retirement, sell. Although, the price is based on value in the market, not what you want. I wouln’t solely rely on selling a business for my retirement.

If you were to go with this option, you would sink as much profits back into the company as possible. Take just enough salary to meet your needs, realistic wants and extra to put into a tax deferred savings vehicle, like VTSAX in your IRA or SEP. While you can invest in your business, the market can change quickly and violently, so you should have some savings outside of it.

In total, I currently profit about $12,000 in my side businesses. I save 100% of my side income in A separate account and have used for vacations and to accelerate paying off the mortgage.  I keep the side income separate. While I have a savings goal from my regular account of $2.5MM, the side business help finance my freedom now.

The second strategy is marrying the right partner.

First, I want to point out that my wife and I do not have the same money goals. That’s OK, because what we do is support each other and can have individual goals and still maintain a happy marriage and house.

So how do you meet that perfect partner that you want to spend the rest of your life with, that will support and grow with you?

I really can’t tell you, but I can give you our story.

My wife and I met through a mutual friend while we were both attending University. We were acquaintances for over a year before we ever dated. At some point, we became closer friends and hung out together alone.

When we started dating, it was not an audition, I already knew I would marry her someday. We were engaged within four weeks of dating and married ten months later.

I was 22 and she as 20. I graduated the week before we got married. Three weeks after our wedding, we moved over four hours away from her family to start my first job. She dropped out of school to further my career and sacraficed hers.

Marriage takes sacrifice and patience

Our intention was for her to continue her education in Augusta after a year. But, during my time in retail management with Wal-Mart (16 months), I was transferred to four different stores in two States (GA & VA.) On top of that, we had our first child 21 months after we wed. We had a goal of traveling and waiting five years, but we discovered birth control is not 100%!

We had two more children before she returned to school. She completed school after our fourth child was born. In less than two weeks from publishing this, we will be celebrating our nineteenth wedding anniversary.

I tell you our story, not to tell you that you need to blindly follow your husband, but to illustrate what what one marriage that works looks like. While I have never sacraficed like my wife, in 2015 I left a great paying job to stay at home with our two youngest for her to push through school.

I worked from home as time allowed, mostly during tax season. I did not return to work until 2018 when both of our youngest were able to go to Pre-K and Kindergarten with my wife.

We lived off my earnings of less than $20,000 and savings the first two years. The third year she had income, as she started teaching. This frugal experience set us up for freedom for when my income exploded, going from $65,000 to nearly three times that after bonuses in just a few years.

Marital bliss is a mindset. Love and respect your spouse. I am not just content, I am extremely happy with my partner in life.

If you are not happy or fulfilled in your marriage, the problem may be you. If your spouse is mentally or physically abusive or neglectful, your best option may be to get out. Otherwise, choose to be happy in your marriage and a stale marriage can grow anew.

So what are the financial perks of marriage? Obviously we benefit from dual income now. There are tax savings, expense splitting and much more.



The third strategy is to create a plan

I do not believe you can get to your destination without a map. There are numerous calculators online that will tell you what you will need in retirement based on your current age and other factors.

Just do a Google search of “Retirement Savings Calculators” and try out a few. I would use conservative estimates, especially if you’re more than ten years from retirement. In my calculations, I input a 7% return on assets, which is below historical returns for VTSAX when adding reinvestment of dividends. I also only calculate 2/3 of my expected Social Security benefit in case the program experiences cuts when I retire. I would rather err on the side of having too much saved! Over time, I have gotten more conservative, if I continued to use 7%, I could withdraw $1,248 of savings every month and still meet my goal.

I only recalculate once per year. The $2.5MM goal started at $1.6MM when I started my goal; however, inflation has increased and I wanted more cushion. I may have to increase my goal in the future, but have priced in several years of inflation exceeding 3%.

Most of the calculators will tell you how much you need to save annually to meet your goals. I had a few events in my life that exhausted our savings (Great recession, I returned to school for a 2nd degree in 2009, and my wife returned to school) so at age 40, we only have 1.2x our annually salary saved. 5 years later, we are up to 3.9x. That’s on track, if I needed to live off 85% of pre-retirement income.  Being frugal, but not doing without, has allowed us to save 16x our annual expenses.

Follow link for what is probably the only book you need on saving for retirement

The fourth strategy is to “Pay Yourself First”

I’m not sure which financial guru came up with this one, but I completely agree.

If you have created your plan, you know what funds are needed to go to your retirement. The rest is for your living expenses.

Highlighted above, I gave some examples of choices I made. If you do not put the money toward you’re retirement first, you will always find something “better” to spend your money on.

It’s so much easier to just stay in the habit of transferring $600 from every paycheck into my savings vehicle.

If your employer offers a 401(k) or similar plan, I would recommend putting there first, especially if they match a certain percentage. Depending on your income levels, a traditional or Roth IRA would be next. The last option would be a taxable trading account or saving in the bank.

My fifth and final strategy is to do what you do best and stay out of your retirement assets.

I believe in Vanguard Total Stock Market and Total Bond Market Funds. I am not a professional stock picker, nor should you be.

Fund managers spend 70 hours per week and have millions of dollars in salaries of employees and software, to just occasionally beat a Vanguard fund. After their high fees, they rarely, if ever, beat over the long term.

Spend your time funding the retirement and set it in a forget. For most people, including myself, this is the best strategy.

For others, real estate may be the key. However, real estate has rarely outperformed the stock market. Owning your own business is a good strategy if you can automate to continue without you, but even then I would diversify into the stock market.

Don’t be the dumb money

Read the Simple Path to Wealth, linked above, it will open your eyes. Simple can still be the best option.

I hope you enjoyed and got something out of the post. If you liked it, I would be very appreciative if you shared.

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Husband and Wife LLC Operating Agreement

What You Will Get From This Article:

  • Steps to start a husband and wife LLC
  • Common tax treatment for husband and wife LLCs
  • Purpose of a Husband and Wife LLC Operating Agreement
  • Sample excerpt from a Husband and Wife LLC Operating Agreement

This post contains affiliate links. Also note, I am not an attorney, this was put together based on experiences as a CPA and from research freely available on the internet. I make no representations that this template is 100% correct and will protect you 100%. Any business venture carries risk, if you are still concerned, please consult an attorney.

Sec. 3.4 contains the election to file on a Schedule C instead of Form 1065.

If you have further questions, please consult your attorney, we will not be held responsible for any losses incurred following the advice in this blog.

If you share a business with your husband or wife, you should have a written agreement to protect your interests. Part of the agreement is below. If this is what you’re looking for, you can order a Word document that you can modify to meet your specific business.

I understand you may be concerned ordering from a website. You can also order in book form using the affiliate link below. You will just have to manually create from the Operating Agreement in the book.

The benefits of a husband/wife LLC are that you can file as a disregarded entity. No need to file a separate partnership return. Typical steps to start a Husband & Wife LLC:

  1. File the articles of organization with your Secretary of State. Most can be done online. All States charge a small fee to incorporate.
  2. Apply for an EIN (Employer Identification Number.)
  3. Get a separate bank account for the LLC, you do not want to commingle assets.
  4. Create an operating agreement.

That’s it. This can all be done in a few hours for a small business.

As mentioned above, the best reason to create a Husband and Wife Limited Liability Company (LLC) is for the simplicity come tax time. While it may not be best for all organizations, the vast majority it is.

The IRS does not see the husband and wife as separate individuals, thus they can file one Schedule C on their personal tax return (Form 1040.) Most entities still get the benefit of the Qualified Business Deduction (QBI.)

You can review my article on taxes for sole proprietors to learn more on the QBI.

Purpose of the Husband and Wife LLC Operating Agreement

To form a contract between you and your spouse that specifies your management plan and the agreement you have should the business need to liquidate or one spouse needs to buy the other out in the future.

The agreement extra important in community property states as it contains the election to elect to be taxed as a disregarded entity and file on the husband and wife’s personal tax return, eliminating the need to file a Form 1065 return. You will need to file a joint tax return and comply with other requirements in your state. (This optional election is in section 3 of the form and is highlighted so you take note.)

Information on joint Husband and Wife LLC ownership regarding taxes is available at this IRS site.

You will need to decide the percentage of ownership you each have, whether 50/50 or something else. Absent an agreement or in community property states, it’s typically 50/50. Note that since you will need to file a joint return, there is no advantage of dividing the profits or losses any other way than even.

Six States (California, Delaware, Maine, Missouri, Nebraska and New York) require LLCs to have an operating agreement. If you reside any any of these States, make sure you have an Operating Agreement on file. The husband and wife LLC operating agreement template available below will suffice in your State.

OPERATING AGREEMENT

Date:

Parties:

The parties to this agreement (the “members”), who are husband and wife, are entering into this agreement for the purpose of forming a limited liability company (the “company”) under the Limited Liability Company Act of the state of [name of state of organization] (the “Act”).

AGREEMENTS:

SECTION 1. FORMATION

1.1 Name. The name of the company is [name of company].

1.2 Articles of Organization. Articles of organization for the company were filed with the secretary of state for the state of [State of organization] on [date].

1.3 Duration. The company will exist until dissolved as provided in this agreement.

1.4 Principal Office. The company’s principal office will initially be at [address of principal office], but the members may relocate it at any time.

1.5 Registered Office and Registered Agent. The company’s initial registered office will be at [address of registered office], and the name of its initial registered agent at that address will be [name of registered agent]. The company’s registered agent and registered office can only be changed by filing a notice of the change with the secretary of state for the state in which the articles of organization of the company were filed.

1.6 Purposes and Powers. The company is formed for the purpose of engaging in any lawful business that a limited liability company may engage in under the Act. The company has the power to do all things necessary, incident, or in furtherance of those businesses.

1.7 Title to Assets. Title to all assets of the company will be held in the name of the company. No member has any right to the assets of the company or any ownership interest in those assets except indirectly as a result of the member’s ownership of an interest in the company. No member has any right to partition any assets of the company or any right to receive any specific assets on the winding up of the business of the company or on any other distribution from the company. Assets of the company may not be commingled with those of a member or any other person.



SECTION 2. MEMBERS, CONTRIBUTIONS AND INTERESTS

2.1 Members. The names and addresses of the members of the company, the amounts of their initial capital contributions, and their initial ownership interests are:

Name and Address of Parties     Contribution Amount     Percentage Ownership

Each member’s ownership interest at any time will be determined by the ratio of that member’s aggregate capital contributions to the aggregate capital contributions of both members.

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The Husband and Wife LLC Operating Agreement is intended to be more brief than other operating agreements since it omits provisions that relate to unrelated members. The Word document is 8 pages, but could end up a couple pages less when executed if you remove optional provisions.

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