Business Structure

10 Replies

Hello friends,

I have a question on entity selection and business structuring.  I plan on starting my business in real estate investing, effective January 1, 2015.  However, I began thinking about how I will structure my business.  Now, I do live in California and I know that the Franchise Tax Board does levy a hefty tax on corporations, llc's, etc.  

My business Ellem Properties will begin in the wholesale side of things where I can build some capital to work with. Slowly, I want to enter Joint Venture projects in rehabbing properties thus earning larger profits. This will lead me into buying properties that I can rehab and market as rentals (SFR's). Finally, I would like Ellem Properties to have enough capital to both flip and sale commercial properties and enter into partnerships on small scale commercial property development and redevelopment (Passive Income).

How would I structure all of this? Do I structure as I go? If I were a LLC, how would my Joint Ventures/ Partnerships be managed within the grand scheme of things in my business set-up?

Thanks.

The Franchise Tax board has a minimum of $800 dollars per year. 

In my opinion i would spend the money on advertising instead, and structure as you grow. However create a strategic plan before you launch so as you hit targets and goals. you can begin implementing your structures and entity plans. Consult with your accountant of the tax implications of your strategic plan. You should also speak with a lawyer about legal implications. 

I would look into an LLC but I am not in California. However, a few lawyer friends of mine have told me that when doing any sort of real estate investing, including wholesaling, it's best not to risk your personal assets by not protecting yourself with an LLC, corporation or some other legal entity.

Quiten,

From the description of your business plan, you seem like a smart guy and a future force in business. Now as a business person, you want to surround yourself with some key people that will help your business go in the direction that you would like to guide it.  You need advisors like: 

An attorney (can assist with structuring a company)

An Accountant (can assist with tax and structure of a business)

A veteran investor if you can locate

You can also check with the SBA regarding business structure if money is limited. 

"Good money spent on people that will help you is not a cost but and investment in success"

Good luck and I know you'll reach your goals. 

Originally posted by @Jonathan Wilks:

The Franchise Tax board has a minimum of $800 dollars per year. 

In my opinion i would spend the money on advertising instead, and structure as you grow. However create a strategic plan before you launch so as you hit targets and goals. you can begin implementing your structures and entity plans. Consult with your accountant of the tax implications of your strategic plan. You should also speak with a lawyer about legal implications. 

 @Jonathan Wilks

Is this $800 on Corporations AND on LLC's?

It's my understanding that to register your LLC with the state of California is $80 (per legalzoom) but I am not sure what the yearly registration is).

@Jonathan Wilks  Thank you for the great advice!!  I should just take one step at a time and follow my business plan.  Yes, focusing on marketing is really huge.  I feel as though things will fall in place as I progress in my career.  Do you use both a Real Estate Attorney and Business Attorney?  Regardless, thank you for your advice.

@Patrick Britton As far as a business entity is concerned, I really do like the LLC because it is so flexible. I don't disagree with you that even when wholesaling, I need an entity that will offer protection. I just question whether or not an LLC will offer the flexibility to go into Partnerships and Joint Venture projects.

@Sean Brooks   Thank you so much for your kind words of encouragement and guidance.  I do agree that I should align myself with a good Real Estate/ Business Attorney and CPA or EA knowledgeable of the Real Estate Business and Tax implications.  Yes, I LOVE business, I have always had an entrepreneurial spirit.  Take care.

@rayeason the state of California has a minimum tax for a entity corporation or LLC or LLP that you get taxed to simply exist.

@Quinten Jones   it is my belief if you don't have assets no need to protect what you don't have. 

 you can simply form a D.B.A. for 30-ish dollars at a court house that you will do business under. As you grow you can alter that change it, and do a multiple additional methods from entities, to trust, and if you have a significant amount of assets you should also meet with a lawyer that can help you in case of death with your assets. 

In the area of A JV with assets. i would create a separate entirely and my LLC would have stock in that separate entity to create separation and my partners would have the same. That entity i would use for the deal or duration of that partnership, so as that partnership is that entity will close also.

@Jonathan Wilks So, what you are saying is that there is Ellem Properties, LLC and then there is a entity that can be called lets say Ellem Ventures, LLP. Therefore, any Joint Ventures or Partnerships can be transacted through Ellem Ventures, LLP. Once the Joint Venture project is done, then I would have my share in the bank and the partnership is done, leaving Ellem Ventures, LLP awaiting the next project or partnership.

You are genius, now I can finish working on my business plan & strategic plan. I do agree that Ellem Properties should be a sole-proprietorship in the beginning and then progress into a California LLC and so on. Thank you once again Jonathan.

 Maybe we can do a deal together in the future!!

@Quinten Jones   - 

Long Term Strategic thinking is great.  If you are starting off as a wholesaler, you do not need complicated asset/tax entities.  Focus more on the looking at the daily grind of your business first.  As you draw upon your personal experiences and more learning as you go along you will develop the entity structure that works best for you as you progress along.  

It seems to me that you are putting business into buckets before you know which buckets you are going to need on your camping trip.  And yes, you may need a Real Estate Attorney, Estate Planning Attorney, and a Business Attorney. You may also need a CPA, Business CPA, Tax CPA, et al.  Where your business goes determines your needs.  

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