Posted by Merez(IA) on November 22, 2006 at 21:05:47:
Yes, there are multiple differences between the two, taxable and otherwise. Your choice of entity should depends on what sort of investments you have/will make with it.
LLC or the S corp? - Posted by Frank
Posted by Frank on November 22, 2006 at 16:55:59:
I am in the process of opening a company for my investments. Is there any tax difference in an S-Corp from a LLC? The reason I ask is that an accountant said to open a S-corp over the LLC. From what I have read LLC are the way to go.
Thanks for you help,
Frank
S Corp has more requirements - Posted by John Merchant
Posted by John Merchant on November 25, 2006 at 12:23:12:
For your accountant’s info and yours, the law of most states requires a lot more bookkeeping and record maintenance of any corp than it would of any LLC.
Such as (for a corp, S or C ) Articles of Incorporation, Minutes, Stock Log or Ledger, Resolutions, etc., etc…all kept current and up to date.
But for the LLC, most states have pretty much said that an LLC doesn’t require all this and an Operating Agreement and Subscription Agreement will suffice.
A bank will require, for opening a bank account in the LLC name, an Op.Agreement and Subscription Agreement so the bank will know who has the right to write checks, transfer funds, etc.
And for a new LLC which is designed for a SDIRA to own, (the SDIRA owning the LLC which in turn buys the RE) the trustee co. will require both those docs too.
I think you’ll find a lot more serious and experienced REIs use the LLC rather than the S Corp.
I seem to recall that an S corp cannot take depreciation…isn’t this the case? (I’m no tax lawyer or authority and haven’t used an S corp in a lot of years so I’m sure not up on same).
Whereas the LLC is merely a tax pass-through to its owners and allows for use of depreciation.
Recently I got a great current lesson in effectiveness of LLC in lawsuit filed against a client regarding a property he and I were involved in that had lots of problems.
The Plaintiff sued my client for his non-performance of what he’d originally agreed to; but an examination of the signed documents signed showed the RE had been purchased by an LLC I’d set up, and my client signed the docs only as manager of the LLC, and not personally…so my client’s lawyer’s formal Answer to the Plaintiff’s petition/complaint stated those facts and the fact that my client had not personally agreed to do anything.
The lawsuit was soon dismissed as the Plaintiff’s atty foresaw too many problems to proceed, including the great amount of billable time his Plaintiff client wasn’t willing to pay for…what might have been a short and simple lawsuit suddenly turned out to have just too many problems to proceed…including the great amount of additional legal fees that would have had to be paid upfront by his client.
To sum-up, I’d recommend the LLC over the S Corp anyday.