B-Corps in Real Estate?

Question

Hi everyone,

So I have debating which entity makes the most sense for starting a real estate investment company in mass. I was deciding between an LLC or an S-Corp and then a business minded co-worker of mine mentioned a B-Corp. I have never heard of it before then but he mentioned its a new type of entity that has really took off in the past 3 years. It's a "benefit corporation", similar to an LLC but each year the company shows an annual report saying how they have helped the environment, community, etc. Seems like, for me, someone who wants to have a profitable business but a help others this could be a great option to look into. I heard it also attracts investors who like to see that a company won't cheap them out for an extra buck and shares concerns for global issues.

Wanted to see what BiggerPockets thinks about the B-Corp, in RE more specifically.

Cheers!

Bill

Ned Carey · Answer

I know nothing about B corps, however which entity you choose depends on what you are going to be doing.  Holding rentals, managing properties, or doing flips all have different risks and tax advantages. The recommended entity might be very different for each activity. Also an attorney concerned about liability and an accountant concerned about taxes may give very different opinions.

Crude rule of thumb

• C corp - terrible way to title property
• S corp for flps (Or LLC tax election as S corp)
• LLC for buy and hold.
• B Corp - unknown (to me)

Contact your professional to ask why. If they don't have an answer you have the wrong professional!

Chris Martell · Answer

I thought I'd revive this thread, since we're seeing more B-corps and Benefit Corporations in my area these days.  I worked for a design-build firm earlier this year that was strongly into the Triple Bottom Lines, and after hanging out in that atmosphere, so am I. :)

As I'm going through the preparatory work for my own company, I'm now facing the question of whether to form a Benefit Corporation (as in, "start a corporation, elect "B" status, then ask to be taxed as an S-corp), or whether to just get the B-corp certification (i.e. create an LLC taxed as an S-corp but throw in the $500 annually for the B-corp cert).  I guess I'll need to sit down with a CPA and a tax attorney and see what they suggest.

For my goals, it's entirely worth it.  The thrust of my business is social and environmental responsibility, and you really can't put a pricetag on credibility.

Neal Collins · Answer

There is a distinction between B Corps and Benefit Corporations.

A Benefit Corporation is an incorporated legal entity recognized by the state. There are no obvious tax advantages to speak of, but I'm not an accountant. The advantage is that the company is not solely responsible to its shareholders for maximizing profit. So if you as a CEO choose to invest in option B with a 10% return but high social impact over option A, with 14% return and no social impact, your board can't fire you for that.

A B-Corp on the other hand is more along the lines of a certification that shows that a company is attempting to be more ethical in both social and environmental spheres. Each company is essentially audited in various areas and awarded a score between 0-200, with a 70 or 80 being passing. So just because one company is a B-Corp doesn't automatically make them a great company, they just went through the paperwork and hassle to get the certification and who knows where they scored. I bet a lot of companies could actually pass the minimum score without changing any of their systems. It is up to consumer perceptions' to see if they perceive a B-Corps being "better" than a non B-Corps.

The upside could be better brand recognition if you get your real estate company certified as a B-Corps. At the end of the day, however, if you're in the game to help people I wouldn't fret over whether or not to be a B-Corps. Be conscientious (spell check originally had this as contentious!) and be intentional in your acts--no matter what business you're in, this is the foundation to building a solid brand.

Jeremy Tillotson · Answer

@Ned Carey I earlier posted something with a link about B corp. These are benefit corporations kinda like a non profit but without the issues of benefiting the directors, and the company can still make a profit. they are new and fast coming, I think alot of people do truly want to give back, look at the success of BP giving back comes back to you.

http://www.biggerpockets.com/forums/56/topics/1628...

Theres a link in the post about them, be interested in your thoughts.

Bill Womeldorf · Answer

Hi Jeremy, sure! I see that you don't have to be a B-Corp to help others but was wondering if you knew any information if it actually is even possible (profitable) with real estate investing because I see most of the few companies that are B-Corps, they tend to me more on the retail or goods aspect of business and can donate a lot of their extra supplies to charities and non-profit groups.

By the way thanks for answering, and good deal with the church. Seems like both parties made out good in that deal!

Happy holidays!

Bill

Jeremy Tillotson · Answer

@Bill Womeldorf I just posted something about this earlier today. No replies yet, so I will be interested to see where this goes. You dont have to be a B corp to help others, it may just go against your other income. However a few years ago we did a non-profit to do some larger giving back, problem was it was really hard to argue I wasnt getting some benefit from it. Since then we have moved to a model where I buy a property (cheap mind you) and market it to sale. Once I have the deal lined up we deed the property to our church, the church assigns me to close the deal, and the church gets all the money.(Kinda a backwards wholesale I guess, you get the point, only after money from buyer is in escrow do we deed the property over, cause our church isnt in the RE business) I bought a property for 3k sold for 10k, but I get the full value of 10k donation even though I was only out 3k. I would like to hear more because I feel we could do more for special areas of concern to my wife and I. Social investing is concept that is really growing. Hats off to you for being concerned. BTW Not legal or accounting advice just what we have done.

B-Corps in Real Estate?

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