Which Entity Is Best For A
Real Estate Investor?

Part Two

By JJ Childers

In Part One of this two-part answer, we discussed the important areas of asset protection, estate planning, and tax reduction. As you learned, there are many important areas to be considered in properly structuring your asset security system. In this second part, we will be taking a brief look at the various entities that make up the asset security system with some bullet points regarding each. This is meant to serve as an overview rather than an exhaustive study on each of these individual business planning tools. Through later installments of the "Ask Our Attorney" section, we will delve into the finer details of each entity so that you can gain a better grasp on which tools can best work together to give you the most iron-clad, rock solid asset protection plan available.

In order to give you a better understanding of the different entities, I have put together a chart for your review that points out the characteristics as well as the differences between the most popular types of legal entities. This should give you a good resource when considering what type of entity might work best for each different type of situation. Over the course of the next few weeks and months, we will be taking a closer look at each of the entities individually and focusing on their role in the overall entity structuring plan.

Quick Chart	C Corp	S Corp	LLC	Limited Partnership
Ownership	Shareholders	Shareholders	Members	General & Limited Partners
Management	Chairman of the Board; Chief Executive Officer (CEO); President	Chairman of the Board; Chief Executive Officer (CEO); President	Managers(s)	General Partner(s)
Start up & Operational Roadmap Documentation	Articles filed with state. Bylaws govern daily operations.	Articles filed with state Form 2253 filed with IRS. Bylaws govern daily operations.	Articles filed with State. Operating Agreement governs daily operations.	LP-1 filed with State. Partnership Agreement governs daily operations.
Ongoing Formalities	Bylaws and annual meetings required.	Bylaws and annual meetings required.	Annual meetings not required, but strongly recommended.	Annual meetings not required, but strongly recommended.
Personal Liability for business debts		No personal liability of shareholders.	No personal liabiliby of members.	General partner(s) personally liable; limited partners not personally liable. Form corporation or LLC to serve as general partner to reduce/eliminate liability.
Who can legally obligae the business?	Officers and directors	Officers and directors	In member managed, any member. In manager managed, any manager.	Any general partner, not limited partners.
Responsibility for management decisions	Board of directors, officers	Board of directors, officers	Same as above	Same as above
Ownership Restrictions	Most states allow one shareholder corporations; some require at least two.	No more than 75 shareholders allowed; no foreign entities or individuals or domestic entities allowed	Most states allow one member LLCs	One general partner and one limited partner required
Limites on Transferability of Interests	Transfers may be limited by agreement or by securities laws	Transfers may be limited by agreement or by securities laws. Transfers to non-qualified persons may cause loss of S corporation status	Non-transferring members' consent may be required by super majority	Consent of all partners may be required
Business effect on death or departure of owner	Corporation continues	Corporation continues	In some states, dissolution unless members vote to continue	Automatic dissolution unless provided for in partnership agreement
Taxation of business profits	Corporation profits taxed at corporate rates; dividends taxed at individual rates of shareholders	Individual tax rates of shareholders	Individual tax rates of members unless LLC elects corporate taxation	Individual tax rates of general and limited partners

ACTION STEP

As you can see, this chart gives you a great overview of the basic considerations regarding the primary types of legal entities for operating a business. Once again, over the course of the next few weeks and/or months, we'll be delving into the specifics of each type more fully. Until then, review this chart and think about how each of these points ties in to the information we discussed last week regarding asset protection, estate planning, and tax reduction.

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About JJ Childers

JJ Childers is a licensed attorney and active real estate investor and developer.

As an attorney, he deals primarily with the areas of asset protection, estate planning, and tax reduction. Simply put, he assists people with overcoming the obstacles of lawsuits, income taxes, and death taxes. He travels the country extensively sharing his strategies with other real estate investors as well those involved in various types of small businesses. Through his innovative and dynamic strategies, he has literally helped thousands of people save millions of dollars in taxes.

Even better, he has the knowledge and experience to apply these strategies to real estate investors in particular. He teaches these strategies to help real estate investors build in more profits to their real estate deals and to properly protect those profits. The unique combination of being both an attorney and real estate investor make him a hot commodity with real estate investors throughout the country.