For small real estate business, LLC or Corporation?

[naveen_cooldude]

Can someone please tell me which legal entity is better for my small real estate investment company?

Thank you.

[Fergal]

If you are investing in real estate you will be utilising the services of a solicitor for signing of contracts etc. The legal entity you use in these circumstances could have significant ramifications for your business, hence you should speak to your solicitor about the most appropriate entity for your own particular and individual circumstances.

[wormy]

You may want to consider not incorporating at all if you have no employees. As far as an LLC is concerned there is a problem with taxes, you will get double taxed on the company profits if you receive funds as dividends rather than wages(which are a deductible expense). If you just do business as a sole proprietor then you will not have to worry about double taxation. Sole proprietors can still make up a business name and open corporate accounts at banks. The only hitch is you don't get protection from lawsuits or debt collection.

I would talk to a lawyer or an accountant about this though, I'm in the US but different countries would have different rules. Also, there is no guarantee I am right about all the details here.

[pendelton]

Corporations get taxed too, unless it is an S-Corporation, which can pass the profits, and possible losses to the share holders. S-Corporations are limited in size, but, for a person aiming for a small to medium business it is good.

LLCs, Limited Liability Company, also has pass through taxes, it does not get double taxed. Partnerships also do not get double taxed. Regular corporations do.

This is for the US, so see your national laws for more information.

There are other pros and cons to each business type, mainly relating to the liability the principals have if something goes wrong.

[wormy]

That's interesting Pendleton, I didn't know LLCs could escape double taxation as well. I was talking to someone a couple of weeks back and he said he was dissolving his Nevada LLC(which he got online for very cheap) because of the double taxation issue which he only discovered after incorporating. If LLCs indeed do have pass through taxation as S-Corporations do then I will reconsider creating my own LLC to basket all my future online activities.

I guess I need to do a lot more research on this topic, so many conflicting reports. :eek:

[pendelton]

I got my information straight from the irs site (http://www.irs.gov/businesses/small/article/0,,id=98359,00.html). The link is to the different classifications of businesses, each one having a page telling a bit about it. The best place to find out about tax liabilities. A tax attorney or good accountant is the best place to find out about tax loopholes. :)

Have your friend find out how they set up the LLC, see if they goofed it up, and, if they did, get a refund. Also, if he had employees you can not count the payroll tax matching as double taxation, Social Security and Medicare, which is 7.65% combined.

[Felix07Richerd]

If you are investing in real estate you will be utilising the services of a solicitor for signing of contracts etc. The legal entity you use in these circumstances could have significant ramifications for your business, hence you should speak to your solicitor about the most appropriate entity for your own particular and individual circumstances.

Best suggestion, I am completely agree with you.:thumbsup: