Many people aim to create income from purchasing and selling real estate. However, one of the most difficult choices is determining how to hold your title based on which entity you choose. There are several choices of entities as follows:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability corporation (LLC)
This is the most common form of real estate entity is sole proprietorship. In this entity, the real estate investor garners full control over the business and all associated responsibilities.
This is also the most simple and least technical entity. Not having associated corporate formalities involved is one of the most enticing aspects of this entity and the reason many investors choose this route.
This entity is defined as a “form of business entity in which two or more co-owners engage in business for profit” according to California law Corps. C. § 16202(a). When both members enter into the contract, each have equal rights and control over the asset.
The partners can decide together the decision-making process. There is a great amount of flexibility with this entity in terms of allocating profits, losses, rights, and liabilities.
Limited partnership is similar to general partnership; it boasts the same flexibilities and benefits. The major difference is the control of the asset. The “limited partner” solely contributes capital. They possess no managerial nor decision making rights.
However, if an issue arises, limited partners have limited liability and cannot be held liable for anything beyond their contribution.
An LLC is defined as a combination of a partnership and corporation. An LLC allows a “pass-through” tax attributes to corporate shareholders according to Corps. C. § 17000.
An LLC requires partner contribution in order to receive membership interests. However, contribution of services and/or property is deemed unlawful consideration for an issuance of shares.
This is entity is a readily-identifiable entity. Corps are separate from the persons and shareholders in real estate. Corps can act “on their own behalf” in regard to how they conduct business, contract, own and convey the property, and civil causes of action.
Corporations are eligible to be tried with both civil and criminal wrongdoings which can become disastrous. Consult with a legal representative to learn more.
Hire an Attorney
If you are entering into the real estate investment world or need assistance with your present real estate, hire a California real estate attorney. Mr. Richard Greenbaum will review your information and explain the legal processes.
Mr. Greenbaum has years of experience working with real estate investors and their associated entities. It is imperative to hire a real estate lawyer to assist with your entity selection and setup. Mr. Greenbaum will help determine which entity appropriate and the most beneficial to you as a real estate investor.
It is important to protect your asset by choosing the correct entity for your property. Call his office to discuss your real estate investment matters today.