Must choose S-Corp or C-Corp or "Pass-Through Partnership"

Question

I've read the great posts on this subject so far. But I still feel like a chimp with a toaster.

I'm going through setting up an LLC through LegalZoom. My business partner and I will be starting our rehab business as 50/50 partners.

I am a Realtor and marketing guy, my partner is the owner of a large heating/cooling company and experienced contractor. He has contacts that wish to invest in our business so our intent is to borrow from them as our main source of funding.

We don't plan on holding any properties, but rather stick to flipping.

On Legal Zoom even though we have been set up as an LLC- it is asking me to choose one of four options for taxation:

* C-Corp
* S-Corp
* Pass Through Partnership
* Pass Through Sole Proprietorship

I guess rather than to ask for advice (although I welcome it) - is there a way to find a good CPA or lawyer in my area on BP. I'd rather look here first than go through the Yellow Pages.

I really appreciate any ideas or help.

Steven Hamilton II · Answer

My advice is either type of corporation. That will mostly depend upon your tax situations. You need to spend some time talking and going through it in detail. I'd be happy to explain the differences for you and what can make you choose each type. I would recommend strongly avoiding the partnership option unless you want to pay a lot of SE tax. Don't "save" money using Legal Zoom. Spend the money on the attorney while you and your business partner will spend some time talking about what issues can come up, buy out agreements, how to value if one wants out. What if someone dies etc....... What if one divorces and so on.... Talk now before it becomes VERY costly when someone is being stubborn later.

Bryan L. · Answer

@Steven Hamilton II - But, with the JV there's no "entity" if I understand it correctly. The one time that I partnered with someone, we didn't do any kind of entity. Just an agreement. And I've seen good sample agreements that are only a couple of pages. And then, once that flip is done, the partnership is over. Much simpler. Too many newbies get all caught up in the "entity" junk and spend more time fretting over it than they do actually making offers.

Steven Hamilton II · Answer

@Bryan L. , A JV is by allright a partnership unless property is specifically held as tenants in common or throught another interest bearing arrangement.

Bryan L. · Answer

@Mark Perrine I'm no attorney and this is not legal advice, but I can tell you from first-hand experience that you don't necessarily need a "company" or an "entity" or a "business" to partner with someone and do a flip together. Why not just do a joint-venture agreement?

Albert Bui · Answer

Thanks Steve I've heard of this but I am not familiar with how it works.

Steve Babiak · Answer

@Albert Bui - corporations can have "preferred" stock that can benefit the stockholder differently than the ordinary stock.

Albert Bui · Answer

With LLC's taxed as a partnership I've been told by accountants/attorneys that you can have an unequal distribution of the profits so you can own more or less but still receive 50% of the profits. This is not the case with S/C corps as it depends on the share you own. If you're flipping property you're probably going to use a scorporation in CA it would be the entity of choice for flipping to avoid SE (self employ) tax of 15.3% and in CA we have a gross receipts tax on the gross revenue of all sales (not net profit) in LLC's. I am not sure what your state is like so best that you check with an accountant and attorney who specializes in your jurisdiction.

Alan Depauw · Answer

A while back I was researching websites to help me draw up Trademarks online. LegalZoom is a popular choice to the uninformed consumer. They operate in a gray area of law where non-licensed individuals are giving legal advice in a loophole. It's looks super cheap and simple, but drawing these things up is anything but simple and will need to be customized for your specific situation. A customization level, I wouldn't trust LegalZoom with. What you're doing is much to important to not get firm legal advice. I'd talk to 3-4 attorneys to decide which is good for you. Start with Shawn's recommendation. I'm a big fan of searching for lawyers/attorneys on www.avvo.com

Alan Russell · Answer

When I setup my local LLC I call an attorney that I had used in the past and explained I what LegalZoom would charge me for setting up the LLC and he said.....I can do it for that come on in. I'm just sayin

Adam Greene · Answer

Please Listen to Mark Perrine 's advice the 5 or 600 you spend to have your corp / partnership setup by an attorney will likely save you thousands or tens of thousands in legal fees and hopefully protect your relationship as well. You might not know it but choosing your corp and corp type and how your corp type is taxed is actually complicated, and carries potentially huge ramifications. ie of you go llc you can designate it function and be taxed as an s or c corp. Then the follow up requirements the tax schedule annual fees meeting mins sufficient funding for the corp. As in any real estate deal begin with the end in mind and exit strategy, what happens when person b gets pisses and wants out etc. Again just my two cents but IMO this is one of the areas you shouldn't cut costs like doing your own natural gas lines ( sure it's easy work but if something goes wrong there's nobody to share the responsibility with it's all on you).