Learn to Protect Your Assets

<h2> Protect your Assets: Create an LLC <h2>

<p> An LLC has several unique features that you should be well aware of:

The tool that we use to protect investment real estate is the Limited Liability Company or LLC. LLC’s are the new kid on the block, having been created about 25 years ago. Slowly, each state adopted its own version of the Limited Liability Act and now all states have given them their blessing. <br>

1.      The participants in an LLC are called members, not partners. They are broken down into two types – regular members and managers. For small, closely held LLC’s, the member(s) is the manager. For larger entities, a separate, third party manager may be brought in. <br>

2.      Unlike the limited partnership that requires two entities for complete protection (i.e. the limited partnership itself plus a corporation to protect the general partner), the LLC requires only one entity. That usually makes it simpler and less costly to set up and operate. <br>

3.      While LLC’s default to being treated as partnerships for tax purposes, they have the flexibility of being taxed either as “S” corporations or “C” corporations as well. <br>

4.      Just like the Limited partnership, LLC’s are protected by the charging order.  <p>

<p> Due to the last three features, LLC’s are being used more and more for retail and service businesses, in addition to real estate. So, are Limited Partnerships a thing of the past? No, not really. They still have their place. One situation is when you want control centralized in one person (or entity). Also, some states have an addition tax that they impose on LLC’s. So all in all, it’s important to understand your particular needs prior to setting up your next entity. <p>

<h2> What is the Best Entity for Me? <h2>

<p> There is really no easy answer to this question. It depends on the type of business, the location, the number of “partners” or shareholders and what other entities you may already have. But, here are some guidelines: <p>

<h2> Non Real Estate <h2>

<p> If and only if this is your first business, you probably want a flow through entity. That way, if your business loses money during the start up phase (as so many businesses do), you can offset other earned income by the amount your business actually lost. Sole proprietorships and general partnerships are out because of the horrible liability they expose. <p>

<h2> Real Estate <h2>

<p> Historically, we place real estate into a limited partnership; especially for projects where there are passive investors. Limited partnerships provide a clear demarcation of management and ownership, and carry the added benefit of the charging order. <p>

<p> Yet, LLC’s also work well with real estate, especially for individuals who are investing by themselves; they provide the asset protection of a separate entity. The added protection and deterrent affect the charging order and give you flexibility to the tax effects. <p>

<p> The ultimate question is which entity(s) will best serve you now for your current business purpose. Often, the answer is, in apart, a matter of timing. <p>