to set up a real estate business
What do you suggest would be the best company formation
for a business completing real estate transactions such as buying
and selling homes, rental property and commercial structures from
an asset protection position? Please advise. Thanks. -- Erick
When starting a new venture, it is always best
to start out with a new company. For real estate purposes, the most
advantageous form of doing business is a limited liability company.
It offers asset protection to owners in the same way that a corporation
does, and for tax purposes it is treated as a partnership if there
is more than one member.
Of course, if you have to personally guarantee loans
on the properties, no entity will offer you indemnification from
these debts. However, you will get personal indemnification from
most forms of lawsuits if you properly respect the form of entity,
by not commingling personal and business activities.
One advantage of an LLC over a corporation is that
the owners pay tax on the profits of the partnership and therefore
avoid two levels of taxation. While it is true that a corporation
can elect to be taxed as an S-corporation, to avoid the two levels
of taxation, the shareholder cannot deduct losses beyond their investment
in the S-corporation.
In an LLC that is taxed as a partnership, the owners
can use the debts of the partnership to claim losses in excess of
their investment. Therefore, an LLC becomes the superior choice
when there are leveraged assets.