Can a c-corp assume all liability without property title?

Question

I am looking to setup a c-corp to collect rent on my multifamily unit. The catch is, I dont want to put the title of the property in my c-corp's name - I want it to remain under my personal name.

Can I use the c-corp to do all the property management (i.e. it will be done by me as an employee of said corp), and if a tenant sues they would sue the c-corp? Or does that fact the title is in my personal name mean that the tenant is able to sue me directly even though they rented off the corp?

Also, I am not a real estate broker - would that mean I am breaking california law if I am acting as a 'property manager' under a c-corp even if it is my personal property?

Greg Meech · Answer

I don't know about California law, but in general there should be no problem putting the home or apartment in one entity (C-corp, LLC, LP) as the holding company and then start a management company LLC and contract that LLC to do all your management. Of course they will sue everyone if it's serious, but your right, you can petition the court saying that the holding company had no activity and therefore should be excluded. Good concept and that's what I do here in Texas.

But why would you want the multifamily in your personal name?

Mohammad Foro · Answer

Thanks guys - I will try to follow through with the suggestions and talk to an accountant about it.

Account Closed · Answer

@Mohammad Foro,

Everyone wants to be protected. I think the best thing get a good insurance policy to cover you. If someone decides to sue you, it is not hard to find out what you own whether it is in an LLC or CORP.

Joe Gore

Greg Meech · Answer

When using an LLC you can "elect" what type of tax treatment. So you can have an LLC that is a pass through to a sole proprietor (which is the default), or you can have an LLC that elects C-corp tax treatment. Or even a partnership. Again this is just for IRS tax treatment.

Separate the IRS side from the liability side. If you have a LLC, and other factors are constant, then it will be it's own entity and own liability protection. But if you choose to elect it as a sole proprietor, then the IRS just see's it as under your SS number and recognizes no separation. This does not diminish the asset protection value.

But a C-corp may not be your best bet. What ever money you give your entity, then it's a capital contribution, which means you have the right to take it back out. So if you get sued, you can have a debt of $100k owed to John Smith for equity contributions.

You need to talk to an account, and then a asset protection attorney and then an accountant again, as they always disagree.

And California is one of the harder states to deal with.

Welcome.

PS, Not sure if I am aloud to post a website, but for tax knowledge questions search CPA Micheal Plaks in Houston. His website blog has some really good articles that explain this in detail. It may change a little from state to state, but it explains the federal side of things with the IRS.

Mohammad Foro · Answer

@Roy N. - yes, I am in the process of looking for an accountant, but it's hard when not in the country. I intend to attend some REI meetups when I arrive and hopefully get some references to good accountants in the Oakland area.
	 Also, the suggestion of making it a captial investment (or possibly a loan) to the corp is something that I am very open to - just need to sit down with an accountant to make sure of it's tax implications.

@Bill Gulley - I specifically dont want an LLC because of the pass-through taxation. Im in a high tax bracket regarding income tax ($150K+), I dont want all profits to come directly to me as income tax, I want to control the timing of when I withdraw profits from the corp.

I do agree with you regarding the insurance - again something that I need to research on so I can get the best insurance policy for my situation.

Bill Gulley · Answer

I suggest you check on taxes concerning RE in a C-Corp it's usually not a good idea. LLCs are the customary entity used in RE.

What is better than any entity is insurance to protect your assets. Any entity can be pierced to get to an individual depending on the circumstance. Insurance will defend you against claims and pay for a loss where you are liable. About the only thing not covered are intentional criminal acts. $5M as liability coverage is a pretty good level but see your agent as to the amount for the area and potential exposure

The next level of protection is good management, acting prudently, following laws and keeping properties in good condition. :)

Roy N. · Answer

@Mohammad Foro

Have a chat with your accountant before doing anything.

Here in Canada, it is fairly common to incorporate a dedicated holding company for the sole purpose of holding a larger property.  However, I understand the arguments for and against this approach will be different in the U.S.A. (i.e. good from a liability standpoint, perhaps not as strong of a tax motivation).

Those arguments aside.  If you were to assign the purchase the property to a C-corp upon close, then your cash outlay would become an initial capital investment in the company, or debt of the company.   You could then refinance the property and withdraw your capital back out of the company with minimal to no tax implications.

Best to sit down with your accountant and real estate attorney to devise an organisation that makes the most sense for your longer term plans ... and a path of how you will get there.  You are best to do this before you start investing as in can be very costly to re-arrange or undo mistakes later on.

Mohammad Foro · Answer

this would make sense if there wasn't much equity in the property (i.e. high LTV ratio like almost all other investors). But since I will only be taking a small mortgage on the property (and possibly no mortgage at all), if I assign it to a corp, I am in essence giving away my asset, ready to be stolen via litigation.

My aim is to keep the asset, but create a buffer layer - mitigating any liability.

J. Martin · Answer

Welcome to the Bay @Mohammad Foro , unfortunately I can't recommend a good aggressive tax acct here.. but @Greg Meech is basically on the money. In CA, you slap lawsuits on any entity you can, and see what sticks.. but the more barriers you create the better.

I am not a lawyer and cannot offer any professional advice. However, many people get loans in their own name. Later, when their circumstances change or otherwise, they "quit claim" or transfer the deed (ownership) to an LLC, so they no longer own it in their personal name. Just the loan is to their personal name. So the natural person (you) no longer owns the asset. Technically, not notifying/seeking approval of change in ownership makes the loan in technical default if they checked, but I haven't heard of people coming to a problem with this, because it seems like most banks don't want to rock the boat as long as you are making your payments.. Just what some people do..

Mohammad Foro · Answer

The main reason is... Im going to be buying the property with 90% cash, for a significant sum. I worked my ass off over many years to earn this money (and paid lots of tax on it already!) and dont want to sign it away to a corp (it just doesn't sit right with me).

I also want to keep it under personal mortgage so I can get a better interest rate.

The thing is, Im moving from London, UK to Oakland, CA in the next couple of weeks, so I am very unfamiliar with US legal and tax issues (trying to read and research as much as I can).

On another note, if anyone knows an aggressive real estate CPA or attorney in the Bay Area I would be grateful for an intro.

Can a c-corp assume all liability without property title?

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