ive started a invest group and the last major decision we must make is whether to make it a llc or corp…any suggestions and y?
thanks ahead of time
ive started a invest group and the last major decision we must make is whether to make it a llc or corp…any suggestions and y?
thanks ahead of time
Your question is like asking if you should use a hammer or screwdriver. The answer is it depends on what you want to do. Each has its benefits and disadvantages.
LLC all the way.
corporate stock is considered an “investment” that can be sued to satisfy judgement creditors. LLC membership is (in most states) considered personal property that is not available to satisfy judgement creditors of the member.
both the corporation and llc protect the individual from liabilities that arise within the entity; only the llc protects the entity from liabilities of the members.
note that none of this matters for a single member LLC where you are also personally managing the properties.
having said that, the LLC is also more flexible with regard to taxes and can be taxed as a partnership, corporation or S-corp to take advantage of whatever tax plan you need. LLC’s also avoid most of the corporate “hassles” that are mandatory for a corporation to maintain: board meetings, corporate resolutions, etc.
I never recommend corporations any more; LLC’s are simply too flexible with all of the positives and none of the negatives IMO.
thank you…so based on the info i should choose a llc…my next question would be how does my investment group go about starting it and how would we contribute our money monthly into it?
Why would your partners be contributing monthly to the LLC?
If you are forming an LLC for investment purposes, you don’t need to collect any funds prior to the deal in escrow. For example, everyone puts in 25% of the purchase price for an investment. Each member/investor would simply send their share directly to escrow and the LLC simply holds title to the property.
If you are thinking of collecting a monthly due, as in an association, that’s a whole 'nother kettle. Think about the following:
As a member of the investment group, what collateral can I get for the monthly $$ I send in?
Who will be in charge of the collected $$? How do I keep my investment safe from misuse or misappropriation by other members?
As a member of this investment group/LLC, how much “power” do I have as an individual investor?
What if something comes up and I can’t go through with an investment, can I get all my monthly dues back?
I say, forget collecting the monthly and just wait until you have a deal in place. Get everyone to give you a “number” to work with and have a 3rd party/escrow handle all the common funds needed for the deal.
im trying to start a investment group where we start from scratch with a balance of $0. every month we contribute money so that we will eventually have enough money to purchase real estate in the near future. im just trying to get it started and am confused on the starting process.
Hmmmm… I overlooked that part in the OP.
Let’s think out loud for a minute.
LLC is just simpler to administer. However, you can tax the LLC as a partnership or corp. So the short answer is LLC, but the long answer is how to tax the thing.
Having shareholders purchase shares of corporate stock each month is a pretty straightfoward transaction. Valuing the stock is problematic to calculate any gain when sold. Shareholders can make APIC contributions at any time or amount. Need to be careful when calculating basis when corprate debt is involved. Ownership % will vary unless everyone purchases and contributes exactly the same amount, which could be a pain at tax time. C-corp avoids some of this by avoiding passthru.
partnership taxation can avoid the problems with different contribution amounts changing the ownership %. Can call additional amounts capital or loans. Basis calcs are still screwy. Still a passthru.
I’m sure I’m missing something. Dave? BLL?
I’m going to have to think about this one for a bit.
that’s why we’re ALL here. None of us knows everything.
:beer
I’m leaning towards LLC taxed as a partnership based on the information provided. I have concerns regarding the roles and responsibilities of the partners and how capital will be distributed.