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4 Types of Business Entities for Your Real Estate Business
Written by Khary ReynoldsTopics: Business
If you are planning on investing in commercial real estate apartments, then you should think about forming a business entity to hold title to your properties. The reasons that it is important to choose an entity are to protect your assets, avoid personal liability and double taxation. It is recommended that you speak with an attorney and/or financial adviser to decide which type of entity works best for your financial conditions.

Popular choices are:

1. Corporation

Corporations are classified as either “C” corporations or “S” corporations. A corporation is considered a legal entity that can be sued. However, your personal assets are shielded and you avoid personal liability. The main difference between a C Corporation and an S Corporation is how they are taxed. A C Corporation is probably not the best choice for your business because the C Corporation pays corporate taxes on revenues, and you pay taxes on the after tax profits personally. With an “S” Corporation, the taxes are passed through to the shareholders as personal income which is reported on your personal tax return. So you only pay federal taxes once. There are some limitations to an S Corporation. Only 75 shareholders are allowed with only one class of stock, and there cannot be any ineligible shareholders.

2. Limited Liability Company (LLC)

LLC’s are similar to corporations. You can have one or multiple owners. A single-owner LLC is taxed as a sole proprietorship, and a two or more owner LLC is taxed as a partnership.
Generally a limited liability agreement is prepared by an attorney which sets forth the way the LLC is going to be operated, the names of the managers and the members. Your assets are shielded like a corporation and you avoid personal liability.

3. Partnerships

Partnerships are between two or more persons or entities. They do not provide any protection from liability. Most partnerships are general partnerships, which means that all partners are jointly liable for debts and responsible for the actions of the partnership and its partners. Partnership revenues are passed onto the individual partners, and they are taxed personally.

4. Limited Partnerships

Limited Partnerships (“LP’s”) are similar to a general partnership, but each limited partner’s liability is limited to the percentage of their investment. The general partners run the partnership. Limited partners simply make cash, equipment or content contributions. A strategy that some limited partners use is to form an entity to act as the limited partner to shield their assets and decrease liability. Revenues are passed on to the limited partners, and they are taxed as personal income.

No matter which type of entity you should, it is smart to use a business entity to run your apartment business and protect your assets and decrease your liabilities. The challenge is to choose which is the best type of entity for you. It is smart to form an entity first before you start investing in apartment buildings. Also, keep in mind that besides federal states, depending on what state you reside in, you may be subject to paying state taxes as well. Your financial adviser can help you make the right decision as to which entity you should select to run your investment business.>>>http://www.sophisticatedinvestorblog.com/business/4-types-of-business-entities-for-your-business/>>>for more.