LLC’s seem to be the fad right now across the U.S. For many situations, the popularity is warranted. However, it is important for an individual to assess the true nature of their “business” before rushing into the formation of a particular business entity. Consumerism as it is, there are far too many people out there ready and willing to take your money and set you up with a generic LLC. Therein exists two problems: 1) that person has no interest in whether or not an LLC is the best structure for the particular business you are conducting, and 2) that person is most likely not qualified in the first place to issue the relevant guidance.
As was mentioned in a previous post, there are several factors to consider when choosing a particular business structure. Will you have employees (i.e. will state law require you to employ an on-site resident manager at your particular apartment building)? Will you have partners or co-owners or will you be the sole owner/manager (i.e. are there multiple investors, are you considering a general partnership, limited partnership)? In what states/countries will you be conducting business (i.e. will you own properties across several states within one LLC portfolio)?…etc., etc.
Generally, LLC’s provide a more flexible structure than a traditional corporation. The LLC is dictated by its operating agreement, which through its drafting can specifically manage the assets of the LLC. Typically, by state, there are less formalities involved with setting up an LLC compared to a corporation. However, ease of formation and management should not be the sole deciding point. To many business people, it is the “pass through” taxation treatment at the federal level that sells them on selecting the LLC. Each member of the LLC reports their share of the profits or losses on their individual tax return and no separate federal tax is assessed on the LLC itself (DISCLAIMER: particular states may have additional taxes –many times called franchise taxes–assessed specifically on the LLC).
The purpose of this posting is to recommend you SLOW DOWN before rushing to create one business entity over another. It is highly recommended you consult with an attorney who is experienced in not only creating business entities, but also has some experience in assessing particular types of businesses and how those particular businesses fit nicely into certain business entity structures. As always when considering assets, profits, losses and long-term planning, advice from a tax advisor and/or accountant is key.
Every business is different, as is every apartment building–don’t make a hasty decision.
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