To me, this does not make sense as we would already have in our agreement that he would own 50% of the business, which translates to me 50% of the profits, correct?
Not necessary. It's only in corporations that profits must be shared in proportion to ownership. (In an S-Corp that's the ONLY way it can be done) In a C-Corp you can accomplish non-proportional sharing of profits through having different share classes.
HOWEVER, one of the reasons that the LLC is becoming so popular is that profits, losses, voting rights, ownership interest, capital gains, capital losses … ALL these things can be shared in any way that the partners decide (through delineation in the operating agreement) … You can do MANY of these things through a partnership as well, but the LLC is the MOST flexible.
How would a partnership like this affect me tax-wise as a U.S. citizen becoming a partner in a Canadian partnership?
US Citizens have to pay tax on ALL worldwide income, (see this: http://www.irs.gov/Businesses/Income-from-Abroad-is-Taxable so you'd report it as just as you do now, on your 1040 (could be from a a k-1 from partnership or multi-member LLC, and it will end up on line 12 – business income or loss – just as you sole proprietorship income does now, from the schedule C) . If you DID end up setting things up as a corporation then you may end up receiving both wages AND dividends)
Because the "start-up" costs are mainly online marketing and website design (all work that Halestorm Media would provide for the partnership) could I still receive a salary from the business
Sure, OR you can receive your share of the profits as self employment income, OR you can receive both as mentioned above, just depends on you you both decide to structure things.
Would it be possible to not become a partner but to remain a contractor receiving a salary with a profit-sharing option, like salary + 15%? If so, how would I set up a profit-sharing agreement with a Canadian company, as Halestorm Media is a U.S. sole proprietorship?
Yes, or as mentioned above, you can do both, OR a combination. You could also just ask for an employment contract as an individual, where a bonus, based on profit, is paid.
I am worried that although my partnership share of 25% would be too low, as I would be contributing more services to the partnership than Ron, who would be receiving a 25% partnership as well. Most of the work of this website transformation are my services (website design, integration, graphic design, marketing, etc.). Also, Joshua is willing to pay for all up front costs, which are really my services + advertising costs, but he wouldn't be contribution much work other than executive decisions. Is there a different way to structure this that would work better for me?
As mentioned above, when a partnership or a multi-member LLC is formed as the business entity here, all of these percentages can be set up any way you want … just write them into the operating agreement. … The fact that you are now operating as a sole proprietor shouldn't be the constraint here.
You need to, first, think about what really IS fair, in terms of compensation, guarantees and share of profits AND how much risk you want to assume. Make a counter offer where the percentages are in line with what you want.
Then the business entity that's chosen OR the employment contract OR a combination of the two can be drafter to make (wages) or allow (profits and losses) that to happen.
On last thought; You MAY want to do the design and then only LICENSE the limited rights to the other company … giving you the ability to CONTROL this intellectual property and license it to other organizations as well.
From a tax perspective THERE, you may want to look at assigning (selling) the intellectual property, which would generate the lower CAPITAL GAINS tax, as opposed to the ordinary income tax that all of the previously discussed options will drive.
Finally, DO remember that with the partnership offer (regardless of which entity type you use) it will only be the profits, on which you are taxed.
Hope this helps