I understand one of us will need to get a bank note to do this but what are the tax implications if profit is being shared with others. Shouldn t we first form a business and then borrow against the business?
You can't borrow against a business unless you can show that it is profitable and has assets. You can form a partnership with your friends and split the income profits. Each partner can claim a portion of expenses on his individual income tax or you could form corporation.
sounds like you plan to operate as a Partnership meaning you get an EIN from IRS and you will file form 1065 when you operate
each partner brings something to the partnership which allows the a certain % of the total business, if the partnership gets a loan then each partner would share the liability of the loan
if one of the partners got the loan he would be offering a higher % than the others and he would also bear the burden of the liability
I frankly don't see much merit in a partnership, all those I have had any experience with soured in no time and someone ends up on the short end
you would do well to get this business going on your own and engage your friends, pay them as you move along and not share your profits with them
Friends forming a partnership are fraught with problems and a multitude of questions that need to be satisfied ahead of time. What happens if one of the partners is sued? Or dies? Or disagrees with the day to day business decisions of this venture. Best to be a silent partner.
You NEED a proper partnership agreement..
– who(ever) puts in the money
– who shares the profits
– who shares the risk/losses
and if 'I' was in a partnership, then I would expect that the profits would be shared by / in proportion to the investment.
So if only one is borrowing / guaranteeing the funding – THEY are the investor.
as it is THEY who carry the risk when it is not repaid..
unless you have a separate person to person agreement to share that loss/risk (so you also become liable to your partner to pay the loan back – even if the bank won't allow you to be named … for some reason).
I strongly suggest that you take legal advice on setting up this arrangement
or one or other of you will end up being very sorry and carrying a lot of personal liability.
I don't understand why one of you would get a bank note but all of you would share in the profits……..?
You could start a partnership, or a LLC corporation. Then the president, or CEO could write everyone a check for any profits.