Why are LLC's so complicated can someone tell me what I need?

Question

I just finished my first rehab house, and I am about to put it on the market in oak forest IL.  I will be doing many more flips and want to know if I need an LLC or an C corp?  Dont really know where to start on this topic.

I have been reading threads on the best way to get an LLC but it is so confusing. Some people say to save your money and do it online, others say to use an agent, and still some people say get an attorney. Do you recommend one way over the other?

Bill Gulley · Answer

Getting an online LLC is much like buying a Yugo for a trip from Alaska to Baja, it might get you there if you stay on the roads, as long as you stay within the parameters that were cookie cuttered for you in the LLC, it might work.

Map out the trip first, not just one aspect of RE but think of all aspects you minght get invoved in. Does your LLC allow different voting rights for members, is there a buy sell agreement, or does much of it simply default to state statutes? I suggest you get a vehicle made for the trip.

The online types might be fine if you're doing the same thing basically and never getting off road.

Make sure you understand every sentence in that Operating Agreement, best way to do that and devise a good one, for free, is to get with SCORE. :)

Bill Gulley · Answer

You ceratinly don't want to go with a C corp! First you need some basic business consultation and you can get free advice from SCORE, google that and follow from there, probably have advisors near you.

An LLC is sufficient to do anything any RE, the type of business structure has very little to do with the nature of business conducted, as a small business your considerations should be based on tax matters, ease of adminitration, flexibility to conduct business, ability to obtain financing and insurance and lastly liability matters. Don't get sucked into the liability scare asset protection as the primary reason to form a company, it is part of the big picture but there are greater issues to consider.

Get with SCORE, they can get you on the right track. Good luck..  :)

Steven Hamilton II · Answer

Bill, 
The corp can make up to 50k and be taxed at no more than 50%. It truly does not have to be any more complicated when you have an llc taxed as a c corp. That figure was combined between both numbers. Everything you just said should also be done with any other entity.

It truly does depend upon the situation.

Matthew Watkins · Answer

Ryan Siriann I can't speak for Illinois but here in Ohio the secretary of state web site has a form to file an llc. You simply fill it out and send it in with the state filing fee which here is $125.00. All you would have to do is decide if you want to act as your own registered agent or hire it out to a business services company.

As for your operating agreement you can find free templates all over the internet, You can try this one to see if it works for you:

http://www.northwestregisteredagent.com/pdf/single-member-managed-operating-agreement-long-form.pdf

Good luck to you!

Bill Gulley · Answer

I'm aware of retained earnings, however not the zero rate on dividends, what I suppose you're saying is up to that 122k.

Sounds like you like the C Corp, not arguing with you Steven, but it's not all about taxes starting out in any business and when one reaches steady income levels you can change your business structure for tax advantages.

Initially, it's more important for newbies, unfamiliar with business requirements to consider taxes at a lower initial or beginning level, access with cash flow, ease of maintenance of records, tax filings, legal work and administrative filings and duies. A C Corp is the most complex, doubt most new folks aren't going to be writing thier own stock certificates and, they can't do thier own taxes, but that's a plus for CPAs (not many newbies are GAAP knowledgable) and insurance can be more costly. You'll also need an attorney to be more involved in contracting and administration not to mention costs of financing being more and more difficult. All in all, if small amounts of money are shooting throurh the business at a sparatic pace, as is the case with start ups, a C-Corp can be a real PITA.

I believe the subject was starting a business, if you're clicking along with consistant earnings of 150K, it's certainly an option Steven Hamilton II. I realize taxes are your thing, but there are other considerations besides taxes starting any business, IMO. That was my point...  :)

Steven Hamilton II · Answer

Bill Gulley,

If the money is not needed anytime soon, you could be looking at a situation where you are ultimately paying less.

For a married couple you need to look at the fact that if they are in the 15% bracket, they can increase their tax bracket to the point any taxable income under 122k is only taxed at 15% or less.  This is between the corp tax rate of 15% and the individual rates.  It can be a HUGE benefit at lower incomes.  Not to mention dividends paid at those rates are taxed at 0%.  Yes, I said ZERO percent.

Bill Gulley · Answer

I doubt that seriously, a public or private corp. Been there and it's absolutely not a tax issue alone, so I have to stick to that, a C-Corp needs serious money to be taxed twice and you need to be in a higher incomr leelel to pay off, but retained earnings can have advantages. Generally, no one on this site will be better off with a C-Corp. But if you can show any reason why, I'm all ears. Steven Hamilton II   :)

Steven Hamilton II · Answer

Ryan Siriann,

Sorry it took me so long to see this post.  I've been swamped with work.  That will depend upon your goals, other income sources AND several other factors.  I recommend using an attorney if at all possible initially.  Yes, you cn do it online; however, IL is a sue happy state so please remember that.  The LLC is to protect yourself.  Have the attorney at least draft the organizing document for you.

Bill Gulley,

Slow down when you say definitely not a C-corp.  That could sometimes be the absolute best option.

-Steven

Ryan S. · Answer

Thanks, looks like I am going to do the online IL form for 500$ and get a an EIN number.   Also dons anyone have a good "Operating Agreement" template, or know where I can get a free one?

Bill Gulley · Answer

John, I didn't form companies for liability protection, I did so for business reasons. Get a $M liability policy, that covers the most serious issues worst case usually, like death. Remember you have to be negligent, I'm not, and the insurance company pays the lawyers to defend you.

If that's what they do in FL. then put your brother-in-law in the company and pay him $200 a year plus whatever deals he finds, now you're a multi-member company. :)

Why are LLC's so complicated can someone tell me what I need?

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