Posted by Greg NY on February 06, 2001 at 07:55:30:
I’ve found mounds of info on corporations. All you have to do is use google.com, search “C Corporations”. Tons of website explaining pros and cons of C, S, LLC, …
How should we organize this business - Posted by Paul Strauss
Posted by Paul Strauss on February 05, 2001 at 21:23:01:
I have a long term business partner. We’ve done numerous deals together outside of real estate and now we’re ready to roll in REI. We plan on limiting our business to lease-option strategies (just in case that might be important), and we’d both like to know between an LLC, and a C Corp. the best way to organize. Keep in mind we’d like to remain flexible in terms of selling the whole shot for cash if the need or the desire arises. Any thoughts out there on the subject. Of course, we’ll get real live legal advice- we just want to check with the community already in the business first…
Thanks for any hints you may be able to give us.
Paul
Re: How should we organize this business - Posted by Mr. Ed
Posted by Mr. Ed on February 06, 2001 at 03:44:16:
I am a third year law student. THIS MEANS THAT I AM NOT A LAWYER YET AND AM NOT GIVING ANY ADVICE, LEGAL OR OTHERWISE.
I will, however, quote from my business planning text (Business Planning, 3rd Ed. by Painter):
"As its name implies, [the LLC] provides limited liability for shareholders and yet for tax purposes is treated as a partnership [income “flows through” to members and the LLC may by agreement provide special allocations among LLC members]. [Unlike S-Corps]favorable tax status cannot be inadvertently lost by failure to meet statutory requirements [such as the requirements that there be only one class of stock, that there be no corporate affiliates, and that there be no more than 35 members]…[Unlike limited partnerships]LLCs do not require that there be one general partner with unlimited liability and they do not prohibit members from taking control of the business.
[Disadvantages to LLCs]: they require at least two members [and have]relatively strict stock transfer requirements…to maintain flow through tax status. [Also,] if other members of the firm do not consent to a proposed transfer of an ownership interest, an investor may be effectively locked in." pg 315
Just a quick summary on C-corps (regular corporations)(again,this is not advice) On the plus side, Corp shareholders have little personal liability and can sell shares to anyone who chooses to buy them. On the down side, Corporations need to meet state and federal securities laws, which require a hefty amount of administration. Moreover, Corporation employee/owners could be subject to double-taxation (Corp & Individual Fed & State income tax) on the same income.
Most state Bar Assns. would suggest that you consult the advice of a lawyer not just to transact the deal, but to help you discover what form of business is appropriate for you.
Good Luck!