Which Type of Legal Entity to Become?
9 Replies
Charlie Gould
from Pine Bluff, Arkansas
posted over 1 year ago
My Son and I are partnering to do RI.
He is an excellent General Contractor with great credit rating (super smart... :-) )
I have high income, low debt, analytical, detailed and good computer skills.
We both live in Northern NH but I work in Arkansas and commute home to NH every 3 weeks.
I have purchased a RI property in AR and we ware looking to buy in NH.
What type of legal entity should we form? LLC?, ???
Thank you for any replies... :-)
Ray Fisher
Rental Property Investor from Higginson, AR
replied over 1 year ago
LLC worked for me, plus personal Asset Protections
Charlie Gould
from Pine Bluff, Arkansas
replied over 1 year ago
Thanks Ray, that is the same thing my son is hearing as well...
Daniel Hyman
CPA from Milwaukee, WI
replied over 1 year ago
Before you create any entity, it's highly recommended to consult with an attorney and a CPA.
Much stress has been endured by folks who hastily created entities without consultation regarding the legal and tax ramifications.
Charlie Gould
from Pine Bluff, Arkansas
replied over 1 year ago
Thank you Daniel, good advice...
My son's account and attorney both said LLC...
Ray Fisher
Rental Property Investor from Higginson, AR
replied over 1 year ago
go to sec of state website and you can set it up for about $50 in Arkansas, I have 3 different entities set up .
My education came from a lawsuit , $25,000 in legal fees and first thing I was told is we don't need to do anything with out an llc.
Anthony Dooley
Investor from Columbus, Georgia
replied over 1 year ago
You could form an LLP. This would limit your business relationship to the real estate investing business and would not allow one of you to be liable for the debt or liabilities of the other. If you buy and he renovates, I would just treat him like a contractor and pay him for his services. This is a business expense for you. His business is renovation/construction, not REI. Having a partner complicates things, in my opinion. If one of you die or become incapacitated, then your wife or heirs would be the new partner(s) by default.
Brandon Ingegneri
Rental Property Investor from Providence, RI
replied over 1 year ago
You’ve got to talk to an attorney and Cpa but an llc is the simplest and cleanest way of structuring with the least amount of distribution ramifications. If you grow into a more complex business, you may then convert to an S Corp, but the ease and flexibility of an llc is excellent for a start up.
Charlie Gould
from Pine Bluff, Arkansas
replied over 1 year ago
Thank you Anthony and Brandon, appreciate the comments...
Scott Smith
Attorney from Austin, TX
replied over 1 year ago
Hey Charlie,
The most common way of proceeding with with the LLC. The most common ways to partner up on deals is either an LLP (less functional, but still offers some liability protection,) or the LLC (more functional and arguably stronger protections.) One good resource on the topic is this article on Joint Venture LLCs. You can operate the investment through it's own bank and EIN, and should something happen that causes legal action you both should be legally protected as long as you formed the document correctly and have proper bookkeeping.
Biggest pointer I would give is to be sure to come up with a strong operating agreement when investing with family that will outline how the investment be handled in different circumstances: if there is a family crisis or the investment isn't working out there is much less stress if you already have a course of action agreed upon in writing.
If you think you may go into multiple deals together in the future it may also be worth looking into a Series LLC.
Best of luck to you moving forward!