LLC or S-Corp for REI business with partner

[Mark Barnes]

Hello BP, I'm curious if you could provide some insight into the better entity to form for REI. Would it be better to form an LLC or an S-Corp? I hear with an LLC the directors can still be targeted in lawsuits. Is this the case? Is there more insulation with an S-Corp as it is an entity in and of itself? My partner and I are looking to go with the wisest choice. Any feedback you can provide would be great thank you. Mark

[Steve Vaughan]

Hi @Mark Barnes

Partnerships can be tough.  The only ship not designed to sail is a partnership!

If you and your partner bring complementary skillsets to the table, it can be a good fit.  One can be a passive money person, the other can locate, manage and repair for instance.

If you need a partner only because your both a little too broke to do it alone and neither can manage or repair?  You get the idea.

It is generally not recommended to own RE in a corp.  An awesome blog was recently written on this subject.  There can be double taxation issues.

In general - active income is for corps. Passive, long-term RE income is for LLCs.  Wholesaling and flipping and management (active income) could benefit more from a corp, for instance.  SE tax advantages. 

LLCs do not have 'directors'.  Talk to a good RE attorney and CPA or tax person.  Learn entity structures.   Have a strong operating agreement that clearly addresses all the Ds (death, divorce, drug use, default, disinterest).  Do not get a boiler plate online Op Agreement.  They just spam you to death with upsell products anyway.

I am not an attorney or CPA.  Seek one and good luck!