First of all I am not an attorney, and nothing I say should be taken a legal advice.

Starting a business or partnership is the same with or without an existing business. You don't even have to keep the existing LLP business structure. If you were starting from scratch you would be buying fixtures and supplies from a dozen companies, in this case you are buying it all from one.

The simplest partnership form is a chapter S. With this partnership all revenue and expenses are passed through on a K-1 to each partner at the end of the year. There is no tax at the partnership level but all revenue must be fully distributed every year. You would add the revenue to your 1040 and the expenses to your schedule A. To my knowledge there is no restrictions on revenue distributions, so you could get paid annually, quarterly, or weekly, as long as there is money in the bank. In general the LLP gives you a little more liability protection with almost the same tax treatment. At the other end of the business structure continuum is the C Corporation. Lots of liability protection and you don't have to distribute revenue, but the company has to pay takes and file its own tax return. In your case this would result in double taxation. Laws vary from state to state but this is the big picture of how it works.


The most important thing is that you and your sister have a clearly written understanding of the roles of the partners, especially with family. A partnership is like a marriage and a business break-up is worse than a divorce.

You may also consider just being a banker and loaning your sister the money. She can pay you more interest than you can make with other investments, like CDs at 2% and she can get a better rate from you than she can from a bank. Then you can get regular payments that are return of principle and interest income, which would make taxes simpler.

The next step would be to look up your nearest SCORE office. (Service Corp Of Retired Executives) This is a great free service associated with the Small Business Administration; check the blue pages of your phone book. They can give you more specific advice about your situation and the laws in you city and state.

Staring a business is not as complicated as it seems at first so don't let the paperwork stop you. Good luck!

I would have to say I agree with KCKieth and in addition I would suggest you contact a small business attorney which can be referred to you through SCORE or you could check your local Chamber of Commerce for a good referral. The next thing I would suggest is consulting with a Tax Advisor and n Accountant who has been in the business for a while and understand your needs. If you have any other question or feel you may need some additional assistance please contact me. My information is provided. Good Luck!!!!!