For many property owners, choosing a corporate structure for their real estate holdings can be a confusing distraction. Property management, whether residential or commercial, brings with it enough unique challenges to more than occupy the committed real estate professional – particularly in these tumultuous times. Although there can be major consequences to this decision, the last thing most owners and managers want to think about is how to set up the right sort of corporate entity to manage their assets.

Vcorp Services can help. We are familiar with all of the various types of entities available in each of the 50 states (and the District of Columbia) and can quickly, easily and cost-effectively help you establish the building blocks that will provide the best foundation for you and your company, giving you the freedom to focus on your business. Please be aware that Vcorp Services, LLC, is not a law or accounting firm, and accordingly we do not provide legal, tax or accounting advice or guidance. For advice on legal, tax or accounting matters, we advise you to consult with a qualified professional about your unique circumstances.

Corporation, Partnership, Trust, or LLC?

One question that regularly confronts real estate managers is whether to hold their properties through a corporation, a trust, a partnership, or an LLC. Each of these comes with its own benefits and disadvantages. Although all of these entities are similar in providing owners with some protection against liability – a crucial advantage – they have major differences as well.

Corporations are perhaps the best-known type of business structure. Most of the major companies we deal with in our daily lives – from General Electric to Starbucks to Home Depot – are set up as corporations, and with good reason. Corporations have more latitude to expand or restrict the rights of different classes of owners, and to issue new shares to the public or to employees as incentive compensation. However, corporations also have unique requirements. They must be overseen by a board of directors, who must meet at regular intervals and who in turn choose managers to run the day-to-day operations of the business.

Corporations can be set up as either C-corporations or S-corporations. Although most corporations are C-corporations, this structure is not ideal in all circumstances, partly because the earnings of C-corporations are taxed at the corporate level, and then again once they are distributed to shareholders. Although S-corporations are not taxed directly – their earnings are “passed-through” directly to shareholders – they are subject to certain restrictions, including a limit of 100 shareholders, all of whom must be US residents.

Partnerships, usually set up as “limited partnerships” (LPs), are a popular vehicle for certain investments. LPs have a general partner, who manages the venture and may be liable for debts incurred by the partnership, and a number of limited partners whose rights are delineated in the partnership agreement. Although LPs are appropriate for certain types of ventures, such as entertainment productions and other limited-term projects, they are less frequently used for ongoing concerns. Unlike corporations, partnerships are not taxed directly, and many of the formal requirements imposed on corporations do not apply to partnerships.

Trusts can take many, often complicated, forms. Fundamentally, a trust is an entity through which one person, known as a trustee, manages property for the benefit of another. Trusts are often used as estate planning vehicles. Although in certain circumstances, trusts can provide tax and administrative advantages, they often impose restrictions on both their beneficiaries and their trustees. Additionally, trustees are generally held to be liable for actions they take relating to the administration of the trust. For these reasons, among others, conventional trusts are rarely considered to be the best vehicle for the management of real estate assets.

Real Estate Investment Trusts, or REITs, are a special form of trust that is often used to manage real estate properties and related assets. REITs are governed by provisions of the Internal Revenue Code, and generally must pay out at least 90% of their taxable income to shareholders each year. Many publicly traded real estate holding companies are structured as REITS. However, in part because of the administrative restrictions on their operation, REITs are not as popular for privately held real estate assets.

Limited Liability Companies (LLCs) combine many of the appealing attributes of both corporations and partnerships. Like corporations, LLCs shield owners from liability. Like partnerships, LLCs generally have few of the ongoing administrative requirements relevant to corporations. Additionally, LLCs may elect to be taxed directly, as a regular corporation, or to have earnings pass-through directly to the owners.

This flexibility extends to the way LLCs are managed. LLCs can be managed directly by their owners, known as “members,” or by outside managers. Furthermore, unlike S-corporations, LLC members can include individuals, corporations, other LLCs or foreign entities. The hybrid nature of LLCs has made them an increasingly popular choice for businesses of all kinds.

Please feel free to contact us by clicking here if you have any questions or to take action today!

This summary is provided only as an overview of certain major issues, and is not intended to be comprehensive. Laws vary by jurisdiction and over time. We accept no liability for any material contained in this document, and urge you to consult with a qualified professional to discuss your unique circumstances.

Tags: 501c3, accountants, Accounting, accounting services, ACH transactions, activities, amendment, apostille, assumed name, balance, banking, bill payment service, business banking, business filings, business finance, business licenses, business services, c-corp, CEO mobile service, certification of good standing, certified copy, certified public accountants, compliance services, consumers, conversion, corporate banking, corporate kit, corporate law, corporate services, corporation, CPA’s, DBA, dissolution, document, document retrieval, elawyering, eni number, entertainment business, fast incorporation, fast LLC, federal tax wires, financial findings, foreign qualification, form a business, Free LLC, getting a trademark, incfile, incorporate, incorporation, independent director, independent member, lawsuit, legal document, legal issues, legal zoom, legalzoom, limited liability company, limited liability partnership, limited partnership, LLC, megan minich, merger, mobile banking, mobile version, name preservation, non-profit, non-profit companies, online banking, professional practice, registered, registered agent service, reinstatement, reporting information, rocket lawyer, s-corp, seal, secretary of state, service mark, small business tools, solutions, springing member, start an entertainment company, start your own company, stock designation, tax identification number, tax-exempt, trademark, UCC filings, ucc search, users, Vcorp, vcorp services, wells fargo

This entry was posted on Monday, October 13th, 2008 at 7:45 am and is filed under Legal. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.