C Corp acting as GP of an Limited Partnership

[Tom C.]

I am wondering what the group thinks of a two-entity stucture like this:

Limited Partnership - LP interests owned by individual [Self/Family], and potentially a small portion owned by the C-Corp, if it makes sense to do so. The GP (General Partner) for this partnership is the Management Company (a C-Corp discussed below). For the management of the investment, the LP contracts with the GP for a market-based management fee. All assets are owned at the LP level, allowing income to flow tax to the entities who own an LP interest and are taxed only once at the owner level. Any risk (beyond loss of investment) is soley born by the GP (the C-Corp) and not LP owners.

[I have purposefully limited the LPs in my example to one, but in practice, I see this being several based on the various partnership you may choose to form]

C-Corp - Management Company - Stock owned by individual [self/family/ira]. Revenue generated primarily by fee income from management agreements with LPs. Generally, this would be service based and would eat most of the business costs you generate. This company would receive the compensation for any work that may be done unrelated to the LPs or W2 earnings. It will have at least one employee and would seek to manage its affairs try to have taxable income of approximately $50K/yr to fill the lowest tax bracket for a C-Corp at 15%. Additional funds would be payrolled out, likely into deferred comp arrangements like a profit sharing plan.

C-Corp wouldn't dividend unless it had retained earnings >$250K (where it would get taxed to retain its earnings)... so at some point you may find yourself managing to break-even, or alas... paying some dividends. I beleive you could even structure the C-Corporation in a manner that it could be owned by your IRA making a dividend less troublesome.

Just wondering about your thoughts. Am I missing anything?

[Steven Hamilton II]

Originally posted by @Account Closed:

Originally posted by @Steven Hamilton II:

Tom C.,

I am very familiar with this structure. You will have to be careful as the individuals who did the work and who are involved in the decision making are usually the ones involved in lawsuits. So this may not entirely be true. If any of the Owners of the LP are involved in the operations of the C-corp, it could be argued that they acted as one entity. You must be very careful to keep things separate.

This does require specific planning all year long. In many cases it may not be worth it. Although in the instances that it is, it is truly a tremendous savings.

Consider the possibility of a management corporation that is owned by the LP.

Also, a personally owned corporation interacting with a corporation owned by an IRA is a prohibited transaction.

-Steven

 Hey Steven,

  We are considering forming an LP for a real estate investment and making our C Corp the general partner. In this manner we believe we can pool funds from a number of investors, let's say five for this example, each having a 15% share, with our C Corp acting as the general partner with a 25% share. Can you identify and explain the potential challenges with this setup? Can you offer better suggestions? Our C Corp is already set up and operating and our intent is to pool investor funds with minimal overhead. 

Cheers!

-Brian

 This would depend upon what your investment goal is and what type of investing you are doing. If this is anything long term I would avoid it as C-corps do not have capital gain rates.  If it is for flipping it is a doable scenario. PM me and we can go over what you're looking to do. I think you might be over complicating the situation.