A small business owner or owner of rental real estate has exposure for liabilities arising from the operation of the business or from the real estate. To provide protection from that liability, owners will often create a corporation or a limited liability company (LLC).
Corporations have been around for a long time. LLCs are a more recent structure, having come into being in the late 1970s. Both are formed by filing a document with certain information with the Secretary of State in the state that is the home base. More information is generally required to be made public with a corporation than with an LLC.
There are two kinds of corporations for income tax purposes. C corporations are taxed at the corporate rate, and then if profits are distributed to the shareholders, the shareholders pay tax on what they’ve received. For that reason, most small businesses or owners of rental real estate elect to be S corporations, with profits and losses passing through to the shareholders.
An LLC combines the characteristics of a corporation with those of a partnership. LLC members can choose how they will be taxed. They can be treated as a sole proprietorship, a partnership, or a corporation. The most common option is a sole proprietorship so that profits and losses are passed through to the members.
LLCs are often used by owners of rental real estate. Owners with multiple rental properties will sometimes isolate the liabilities by having each rental property owned by a separate LLC.
Deciding which entity structure to use depends on the type of business, tax consequences, the owners long and short term goals, and other factors. We advise our clients to consult with their CPA before forming either of these entities.
Could your business interests benefit from one of these types of protection? Our team will work with your financial and business advisors to be sure you are protected.
Contact the Estate Planning Law Group of Georgia