Two partnering forming LLC

[Abou C.]

Question? forming my company in the new year, We plan on consulting a experience lawyer in the real estate investing arena . Is there any questions or things you have done that you wish you knew before incorporating? 

[Jerry W.]

@Abou C. there are some good reasons to use business entities in going into the real estate business. In my opinion it is malpractice to recommend a regular partnership anymore. The type of entity that will best fit your needs to be considered as some are better for buy and hold and some are better for fix and flip. All corporations if you observe the corporate formalities provide some liability protection, but keeping good insurance at high levels is a must in my book. An LLC does not protect you from suit, it helps protect you from only certain types of lawsuits by limiting the assets they can attach if things go south. To say they provide no protection is just plain wrong.

Here is an example. In a regular partnership you have unlimited liability for actions of a partner. So if you have a partner and on behalf of the partnership he incurs a debt of a million and the business folds you are personally liable for that million dollars. If you form an LLC, (which is really just a partnership with the asset liability protection of a corporation) your liability is limited to the assets in the corporation if you observed the proper formalities. A corporate entity doesn't help you win a lawsuit, it helps you limit your liability if you lose. I have done pierce the veil lawsuits, although none recently.