LP Or LLC
What is the major differences and which would be better for most businesses let alone RE. We are considering commercial property. Thanx...
What is the major differences and which would be better for most businesses let alone RE. We are considering commercial property. Thanx...
Use LLC. Every member will be shielded from liability.
In an LP, the general partner (GP) is still personally liable for debts of the partnership. Only escape is to make the GP a corporation or LLC, but then you've got a two-tiered organizational structure and more filing fees and costs to deal with.
I personally like a corp, a C-type corp. IMHO they're tried and tested. You have a little more paperwork, but they're a whole lot easier to understand.
I would definitely not recommend a partnership. It doesn't afford you any liability protection.
For example, if you own a commercial property through a corporation and some idiot gets drunk and falls out of a window, then sues you for owning the window, he can only sue the corporation. He can't take your home, your property.
Say the jury decides you were negligent. They aware him 2M but you're only insured for 1M so you have to sell off the assets of the Corp to pay him off, but you, as the employee of the corp are clear. You may lose the business (God forbid) but you've still got your home, your cars, your vacation timeshare, etc...
Also, there are many tax advantages to owning a corp (or LLC), Like I said, Corp is just my favorite.
But certainly stay away from partnerships and sole proprietorships. You're asking for trouble.
I would certainly recommend you talk to a QUALIFIED lawyer.
Ronnie
Why would you choose a C-type Corp and incur tax at the entity level?
There certainly are instances where it is better to use a corporation than an LLC. But the only instances where I recommend using a corporation instead of an LLC are where it is more costly to form the LLC (e.g., where the state has a publishing requirement and a high filing fee--like NY).
That's just a personal preference. IMHO Corporations have been around for centuries and their protection has been documented countless times. An LLC is still a fairly new entity. I just don't trust it. But that's just my opinion, not fact.
Besides, if you do it right, you can pay less taxes through a corp. And, income up to 50K is only taxed at 15%.
The answer, if there is one in the C corp LLC debate, depends on your needs and the state that you live in. I think for 95% of real estate investors there is no need for a C corp. LLC has much more flexibility and much less hassle with similar protection. I personally don't have any mistrust of LLC's, while they are new I don't know of any reason to think they will be sucessfully challenged.
I would use both so your both right! I would hold my property in a land trust with an LLC as beneficiary. I would use a corporation C or s to run my day to day business out of because there are so many more write offs! AN S corp if I wish to offset self employment tax (up to 87K in 2003) and or have a wife earnig $$ that I would like to offset with corporate expenses.
I wrote an article on this that was a little better explained that the others on this site but it seems to have disappeared!
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