New business partnership question

I think you need some legal advice... this is not a marketing question.

There could be unexpected tax consequences for doing what your wife's prospective partner wants to do.

It also seems a bit shady (would she charge the startup company rent if it was just her?)

My most successful partnerships have happened when each side brought unique benefits to the table in approximately equal quantities, and they all canceled each other out for equal equity.

From what I know, and understand, and I am not a lawyer.... And this is US centric, so some may not apply to one in London, but you likely have SIMILAR rules!

Unless the partner started as a C corporation, LLP, or some such, it was likely started WRONG, DBAs, I believe S corps, normal partnerships, and sole proprietors are supposed to be setup with the ID documents(articles, DBA, etc,,,,) for the owner(S), and then THAT is generally used for licenses and financing. C corps, and LLPs, are setup to handle such things.

BTW if it IS a limited liability corporation, the idea that a third party is contributing through the private home COULD be used to "pierce the veil". And it ALSO opens up tax issues since you couldn't really deduct it, she may, and the IRS, in the US at least, apparently uses aspects of that to flag returns for audits. And PERSONALLY I think it is a bad idea to do that, ESPECIALLY if it is paid directly to some company, or mentions the home.

Frankly, I would insist on SOME legally recognized ownership, and want all funds to go into the business directly. If I were her, I would not deal with them.

Steve

IANAL; just my opinion here: If rent is charged at all, the business (not the individual partners) would pay rent (a business expense) to the home owner. The home owner is then liable for paying taxes on what is now their personal income, presumably after deducting a portion of their personal mortgage or rent for that part of the building. It just doesn't seem worth it for all of that.

I think the partner is trying to cover her butt for the home office deduction,
which I've always heard is a red flag deduction in the eyes of the IRS.
But, again a US based answer.

As David pointed out, the business should pay the rent - not your wife personally.

But, you are heading towards partnership issues. The partner invested x, y, and z into the
business, and your wife invested a,b, and c. What is the value of x,y,z and what is the value of
a,b,c? What should the return to each be? How does it become a 50-50 partnership, or is it a 60-40
partnership, or whatever?

I don't know the rules and regs across the pond, but if this were US based, I'd say you need legal and partnership advice, tax advice, and advice about commercial kitchen issues and qualifications, and other food business regulations.

I'd also be very thoughtful about the partnership going South, and therefore the friendship.

Is it worth that? They already - maybe - seem to be having the kind of communication issues/attitudes
that lead to nastiness.

Dan
IANAL,(I am not a lawyer) but thought about becoming one for almost 4 years while working
in that field a little. LOL

Thanks for your useful insights and opinions even if they are from the states. We obviously need to get more legal advice to clarify any doubts regarding these issues.

Thanks for contributing here guys...