Flipping: LLC to S-Corp

[Sam Craven]

I am setting up a business with a partner. We will have a rehab and flip business as well as some buy and hold properties in the near term. We will group our hold properties in asset sizes that we feel comfortable in an LLC.

I need some guidance on our flipping entities:

I have searched, talked to a few lawyers and a few different investors and the best advice I have received (in my opinion!) so far is to set up an LLC as the main business that is owned by our individual S-Corps. This provides the asset protection of an LLC and the tax savings of the S-Corp.

I want the great people of BP to challenge my thinking and offer some other ideas to explore....Or give support as to that being the best method.

[Bill Gulley]

If the S corp suits you needs it's a very good plan. You will have some maintenance issues with the Corp and LLC and some can be limited with a good by-laws/operating agreement. You'll need to approve actions taken by the LLC in the Corp minutes and LLC minutes and by defining what needs to be authorized and what can be accomplished without specific approval will save you hours of time. You accountant can help you with setting up a cut-off amount for checks to be written, (consider the balance of the account for a prudent cut-off amount) you'll make life easier for one to buy smaller items.
Another issue is the buy out by either partner and the events of withdrawl of partners. The death of a principal won't kill the corp structure but you may be dealing with heirs, so consider how either party can get out and assume business management.

Good luck...