I have seen people with companies as an LLC but I do not think that a LImited Liability Corp. provides enough protection, if needed, or advantages. I always want to make certain to do things the proper, legal, and forthwright way in any business dealing. Money cannot buy a good and clean quality reputation. I want to do business as a real estate investor in an Incorporated business. My question to those of you in the know or at least in the business for a while, is, do you recommend Incorporating in this line of business? Are there any known pitfalls this could cause? Does it make it difficult to get financing or does it make it easier? I guess I am looking for the pro’s and con’s of Incorporating. Any ideas? ???
I’m looking at the same thing. If for no other reason, I plan to incorporate for the image it portrays to others. Some people just use a land trust to protect them. That’s very common if you buy subject2.
There’s actually an article on this website about which type of corporation you should form. It talks about LLC, s-corp, and c-corp. If you’re just starting, LLC seems the way to go. Then c-corp once you are doing it full-time.
My advice to you is to consult with both a lawyer and accountant that specialize in real estate.
The pros & cons for LLC, S Corp, C Corp are numerous and you should base your decision from professionals that are well versed in your state laws.
I personally chose a LLC but I know others that have chosen C Corp becasue their needs were different than mine.
Patti Porter
Thanks for your feedback. Marcus, I feel the same as you do about IMAGE. A business that is incorporated has a “stronger” feel to it with which to do business. I believe I would prefer the complete asset protection of a C-Corp in the beginning. I can always (and plan to) grow into the available C-Corp company business options.
And thanks to Patti for her insight of using a lawyer and accountant. I believe these are 2 very essential people to have on-board from the beginning.
I am looking to Incorporate out of the state of Nevada. After lengthy research, that state wins hands down! It provides more privacy invasion protection, less costs, and seems to have more options available. This link may be helpful. http://www.mycorporation.com/whynevada.htm
One thing about incorporating that I’ve found. If you do business in Cali then you need to pay the franchise fee regardless of where you are incorporated. Cali is greedy about getting their hands on the money.
Nevada is the way to go for incorporating any business as no third party can get your information, that means the IRS…In fact you will only list your name and home address on 1 document and no one really sees it. You will need to get a resident agent that will handle all certified mail you recieve for the state when setting up. I recommend going thru an account or lawyer to properly set it up
As for me, I went with an LLC to hold,buy,sell my properties. That is its sole function for protection purposes. Also keep in mind if the properties are in an LLC and your tennant decides to sue you, it provided total protection from your personal assets which is why you want an LLC. Then you can set up a C-Corp to act as the property management company to take all your deductions with. This is one of the best ways to go…
I have been doing enormous amounts of research on this subject and have not come to a conclusion myself. One main difference between an LLC and an S corp is that with an LLC you do not have to hold annual meetings of shareholders, and directors… so it is a little less formal than a corporation would be. However, If you create the business with a partner than an LLC could be more risky because it is not perpetual like the S corp is. If you or your partner pull out, is can cause the company to dissolve. Both the S-corp and the LLC are supposed to be comparable with your limited liability protection.
www.bizfilings.com is a great website that can give you some valuable information while researching your best option…
There are no significant differences between LLC and S/C Corp with regard to taxes UNTIL you are making a LOT of money. At this point, the plan changes.
There ARE significant differences between the amount of administrative hassle required: Corps require annual meetings, resolutions to buy things etc etc. lots more paperwork than an LLC.
There are MAJOR differences between LLC and Corp with regard to asset protection. These are general guidelines that apply in TX and NV, I would assume most states to be similar, but that’s the disclaimer.
Both entity types effectively protect you personally from liability arising from within the entity (landlord gets sued).
However the difference is what happens to the entity if you personally are liable (you rear-end someone in your Pinto)
Ownership of corporate stock is an “investment” whether it’s IBM or Joe’s Real Estate Co. Investments can be ordered transferred to satisfy a judgement in court. This would make your adversary owner of your corporation and all the assets it owns and controls.
Ownership interest in an LLC is considered “personal property”. as such it is not available to satisfy judgements, effectively isolating your company from your personal liabilities. A very significant difference.
It’s hard to cover all the details in a forum format, but let me know if you have any more questions.
Mark Wagner, CPA
AND
due to the cost of registering as a foreign (NV) corporation doing business in Texas, it’s cheaper to have a TX corp. Plus, to do business in TX you are required to conform with TX rules regarding disclosure, effectively eliminating any privacy benefits from being a NV corp. sorry. Most states are probably similar.
Mark Wagner, CPA