PA Real Estate Blogs

Entrepreneurs have a choice of five possible legal structures: sole proprietorship, partnership, Limited Liability Company, S corporation or C -Corporation. As with many small businesses, an LLC is probably your best bet. Since I am not an attorney I would suggest you seek the advice of an attorney and tax accountant before making a decision. This is a guide so that you have some basic knowledge, and can ask educated questions of your professional as to what suites your personal situation best.

Setting up an LLC protects you from personal liability; only the amount of money you put into the business is at risk. To further limit your personal liability carries an umbrella policy/ insurance.

While corporations also limit personal liability, LLCs are simpler and more flexible: They don't require a board of directors, shareholder meetings and other managerial formalities. Corporations must have boards; for real estate firms, each director must be a licensed real estate broker.

LLCs also offer the most flexible tax treatment. That's because an LLC's profits can be taxed as a corporate entity (a C corporation) or as a "pass-through" entity (an S corporation), meaning that the company avoids paying taxes on both corporate profits and the owner's personal income. Most LLCs choose the pass-through option.

However, in some cases, LLCs can choose a C corporation tax structure and save money by funneling profits back into the business tax-free.

Another advantage to LLCs is that entrepreneurs can divvy up profits any way they choose, whereas with shareholders, the spoils have to be carved up in proportion to each shareholder's percentage ownership in the corporation.

One caveat to LLCs: If you're planning to build your brokerage into the next big publically traded company, be aware that it's difficult to go public using this structure. Many firms often start out as LLCs, and then re-organize as corporations when they grow up.

Bill Sands of Sands & Company Real Estate