Structuring A Partnership

Hello,

I have a client that came looking for advice on structuring a real estate deal and I figure that many of the members on this forum have some helpful insights.

Partner A will invest 95%, Partner B will invest 5%.

As far as work/responsibility, Partner A will handle all the admin, getting an LLC setup, obtaining insurance and other office work. Partner B will handle the physical work of renovating the property and coordinating with contractors/architects.

The issue is how to structure the P&L split. There is a large disparity in the capital contributions and they will both be working, though it is likely that Partner B will spend more time on the project than Partner A. Perhaps 60% of all hours will be spent by Partner B and 40% by partner A.

It would be simpler if one partner was doing all the work and the other was investing all the capital but that is not the case.

One idea I proposed was for Partner A to take 90% and Partner B to take 10% as compensation for the additional time. However, the concern is that the stake is still too low for Partner B to have a meaningful stake in, and therefore sufficient motivation for the project.

Thank you.

They can do whatever they want for profit split. It does NOT have to follow capital. Now, a capital interest, i.e. what happens when it sells, can create a taxable event if they agree to divide 50/50 for example, with B only having 5% in. But profits can be whatever they agree on.

Why not assign each partner a rate for time worked or a salary and use such rate/salary for guaranteed payments?

They can do whatever they want for profit split. It does NOT have to follow capital. Now, a capital interest, i.e. what happens when it sells, can create a taxable event if they agree to divide 50/50 for example, with B only having 5% in. But profits can be whatever they agree on.

When the primary income generator is the sale of property, the idea of perfect flexibility in the allocation of profits may have some boundaries.
Is any of A's 95% the real estate they are contemplating selling or are all partners contributing cash?
Will there be any cash flow until the property is sold?
Lastly, the operating agreement may be modified as late as the original filing deadline (March 15th) if that timing is necessary to line up profits with the actual economics of the deal or quantify the efforts of each partner.