restaurant partnership -LLC question

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Panam@2016
Posts: 19
Joined: Wed Nov 23, 2016 1:36 pm

restaurant partnership -LLC question

Post by Panam@2016 »

Hi all,

I'm thinking of getting into partnership with a childhood friend. I know nothing about this business but he has been in this for last 25 years. He recently bought the restaurant and would like me to join with him. He will own 70% and I will own 30%. I will be his silent partner. He currently runs it under his LLC.

I live in NJ and the restaurant is in VA. I'm planning to join with my own LLC. The question is where to form it - NJ or VA. Has any of you done this before - living/having LLC in one state and having business in other state. Any advice for me how to go about? I will be meeting with an attorney in few days. But I thought I would tap into the wisdom of bogleheads.

Few options:

A. Join his LLC
B. Start own LLC in NJ
C. Start own LLC in VA
D. No LLC but have a business agreement and invest the money

I would appreciate your opinion.

Thanks for reading!
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arcticpineapplecorp.
Posts: 15721
Joined: Tue Mar 06, 2012 8:22 pm

Re: restaurant partnership -LLC question

Post by arcticpineapplecorp. »

Panam@2016 wrote: Tue Jul 09, 2024 8:34 pm Hi all,

I'm thinking of getting into partnership with a childhood friend. I know nothing about this business but he has been in this for last 25 years. He recently bought the restaurant and would like me to join with him. He will own 70% and I will own 30%. I will be his silent partner. He currently runs it under his LLC.
you want the advice of boglehead wisdom...

the parts in red scare the bejezzus out of me. if this thing goes south which it might for 1000 different reasons, and none having anything to do with how hard working and dedicted your friend is to make it work, you could lose your money and your friend. If you can afford to lose whatever you're investing and still maintain your friendship, go for it. But if you can't, I'd strongly suggest you don't.

how did you come into this in the first place?

you say he's been in it for 25 years. Has he worked at the restaurant and the owner sold it to him? Working in the restaurant is not the same as running/owning/operating it.

do you think it's wise to invest in businesses you know nothing about?

I know most people don't know probably about 400 or more of the companies that make up the S&P500, but still, it's publicly audited, and well diversified. Owning this business is nothing of the sort.

If you're paying a lawyer I'd go with the advice of the lawyer, if you trust him.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Jack FFR1846
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Location: 26 miles, 385 yards west of Copley Square

Re: restaurant partnership -LLC question

Post by Jack FFR1846 »

All I know about restaurants comes from a co-worker who was a 99 manager turned engineer when he got tired of it. He tells me that they made 100% of their profit from alcohol sales. The food? Zero. Nada, nothing. If they only lost a little, it was a win. The 99 he managed has since shut down. Most new restaurants shut down in a couple years. No thanks.
Bogle: Smart Beta is stupid
bobn60014
Posts: 121
Joined: Tue May 21, 2024 6:59 pm

Re: restaurant partnership -LLC question

Post by bobn60014 »

Worst business to invest in....unless you have money to burn.
SubPar
Posts: 526
Joined: Mon Apr 27, 2020 11:48 am

Re: restaurant partnership -LLC question

Post by SubPar »

Yeah, the restaurant industry is famous for razor-thin margins as others have pointed out. Tread carefully and make sure you fully understand your authority, responsibilities, obligations, etc., as a partner.

State laws vary (EDIT: as ask your attorney), but there's generally nothing wrong with organizing an LLC in a state and having the principal place of business in a different state. Though, it's likely to create more registration/filing requirements. E.g., we organize most LLCs/LPs in Delaware and have annual filing requirements there, but also file Certificates of Authority with other Secretaries of State in the places we operate.
Last edited by SubPar on Wed Jul 10, 2024 11:31 am, edited 1 time in total.
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mrmass
Posts: 1656
Joined: Thu Jul 26, 2018 6:35 pm
Location: MA

Re: restaurant partnership -LLC question

Post by mrmass »

bobn60014 wrote: Tue Jul 09, 2024 9:12 pm Worst business to invest in....unless you have money to burn.
Yup, friend must be out of money. Looking to OP for cash. In this case money doesn't talk-it's silent.
Davistax
Posts: 103
Joined: Fri Aug 28, 2015 9:24 pm

Re: restaurant partnership -LLC question

Post by Davistax »

During my 40 year CPA career, my #1 piece of advice to any client thinking of investing in a business was to never invest in restaurants or race horses.

Every client who ignored that advice later said they wished they had listened to me.
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Hacksawdave
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Joined: Tue Feb 14, 2023 4:44 pm

Re: restaurant partnership -LLC question

Post by Hacksawdave »

There is a reason most restaurants fail within the first year or two, and it is because of not understanding that running a restaurant is having the departments of a major corporation crammed into a single building and ‘run’ by a few.

Just because people liked mama’s recipes and one ‘loves food’ does not qualify for running a restaurant, let alone investing in one. A few areas of knowledge and expertise required:

• Accounting - legers, cashflow, receivables and payables, taxes, fees, real estate costs, depreciation rules
• Procurement – suppliers, contracts, terms, storage, spoilage
• HR – Labor, benefits, deductions, payroll, payroll taxes, union grievances and collective bargaining
• Legal – contracts, site insurance, patron and employee liability, filing compliance, risk assessment and management
• Governance – food and health safety, local, state, and federal regulations and ordnances, compliance, licensing, inspections and pest control
• Alcohol – license, compliance, risk assessment, ordnances, employee training and policy establishment
• Marketing – advertisement, reputation, concept implementation and protection
• Technology – restaurant infrastructure, website, social media
• Equipment – Knowledge, procurement, repair, maintenance, service contracts, training

I am sure others can chime in, but this alone for two people is way too much. I would agree with the poster that stated to never invest in a restaurant or racehorses.
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elcadarj
Posts: 262
Joined: Tue Aug 30, 2016 8:21 am
Location: Charlotte Metro

Re: restaurant partnership -LLC question

Post by elcadarj »

Watch a couple of episodes of The Bear on Hulu, then think about it, then don't do it.
Box of Rain
Posts: 86
Joined: Sun Dec 24, 2023 8:39 pm

Re: restaurant partnership -LLC question

Post by Box of Rain »

restaurants exist so that the owners can suck all of the revenue out of them and then the LLC for the restaurant goes bankrupt. An intermediate step is using the business equity in the restaurant to get loans to buy/start another restaurant....and then suck all the revenue out of the first one...and the LLC goes bankrupt. How a 30% owner gets anything out of this other than losing money is beyond me.
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BrooklynInvest
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Re: restaurant partnership -LLC question

Post by BrooklynInvest »

arcticpineapplecorp. wrote: Tue Jul 09, 2024 9:04 pm
do you think it's wise to invest in businesses you know nothing about?
To me this is the beginning, middle and end of the discussion.

Granted, I don't know very much about the 500 stocks I own, but at least they're audited, their financials are public and their value determined by a million other owners. I can also sell within a second if I choose to.

Good luck OP. Not an idea I'd personally entertain.
Onlineid3089
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Re: restaurant partnership -LLC question

Post by Onlineid3089 »

If they recently bought the restaurant, why the need for a partner now? If it is profitable, why would they choose to share that with you? If it isn't profitable, what's the incentive for you to buy 30% given that you're planning to be a silent partner and I assume won't be contributing anything to the operation but cash? What about your cash suddenly makes it profitable?

I'd politely decline the offer.
bobn60014
Posts: 121
Joined: Tue May 21, 2024 6:59 pm

Re: restaurant partnership -LLC question

Post by bobn60014 »

Panam@2016 wrote: Tue Jul 09, 2024 8:34 pm ...I'm thinking of getting into partnership with a childhood friend. ...
Forgot to add, he won't be a friend for long.
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Raymond
Posts: 1916
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Re: restaurant partnership -LLC question

Post by Raymond »

I hope OP returns and tells us he declined this opportunity to lose money (and his friend.)
"Ritter, Tod und Teufel"
Topic Author
Panam@2016
Posts: 19
Joined: Wed Nov 23, 2016 1:36 pm

Re: restaurant partnership -LLC question

Post by Panam@2016 »

wow...didn't expect this but thank you all for unanimous advice...much appreciated...will tell him know my "no" on this. again, thanks for your time.
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Raymond
Posts: 1916
Joined: Mon Apr 16, 2012 6:04 am

Re: restaurant partnership -LLC question

Post by Raymond »

Panam@2016 wrote: Wed Jul 10, 2024 9:09 pm wow...didn't expect this but thank you all for unanimous advice...much appreciated...will tell him know my "no" on this. again, thanks for your time.
Glad you declined and updated us.

I think everyone's concern was that this was a situation (as mentioned above) where your friend was going to convert his experience and your money, into his money and your experience.

Or pour the money down a rathole if the restaurant isn't doing well.

I wonder how many people he's offered a 30% silent partnership to?
"Ritter, Tod und Teufel"
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arcticpineapplecorp.
Posts: 15721
Joined: Tue Mar 06, 2012 8:22 pm

Re: restaurant partnership -LLC question

Post by arcticpineapplecorp. »

Onlineid3089 wrote: Wed Jul 10, 2024 4:08 pm If they recently bought the restaurant, why the need for a partner now? If it is profitable, why would they choose to share that with you? If it isn't profitable, what's the incentive for you to buy 30% given that you're planning to be a silent partner and I assume won't be contributing anything to the operation but cash? What about your cash suddenly makes it profitable?

I'd politely decline the offer.
this was very good thinking. I was thinking along the same lines and was going to write this too, but thought I'd said enough already. Well said.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Tundrama
Posts: 300
Joined: Thu Mar 11, 2021 9:26 am

Re: restaurant partnership -LLC question

Post by Tundrama »

Panam@2016 wrote: Tue Jul 09, 2024 8:34 pm Hi all,

I'm thinking of getting into partnership with a childhood friend. I know nothing about this business but he has been in this for last 25 years. He recently bought the restaurant and would like me to join with him. He will own 70% and I will own 30%. I will be his silent partner. He currently runs it under his LLC.

I live in NJ and the restaurant is in VA. I'm planning to join with my own LLC. The question is where to form it - NJ or VA. Has any of you done this before - living/having LLC in one state and having business in other state. Any advice for me how to go about? I will be meeting with an attorney in few days. But I thought I would tap into the wisdom of bogleheads.

Few options:

A. Join his LLC
B. Start own LLC in NJ
C. Start own LLC in VA
D. No LLC but have a business agreement and invest the money

I would appreciate your opinion.

Thanks for reading!
You could hang TVs and make more profit and risk nothing.

Please listen to me….don’t do this.
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