Business Entity formation?

[Janyl Ventura]

Hi all,

I'm working with 2 others to start buying properties to hold and rent out. I'm aware that having properties under an LLC is a smart move for liability protection, I'm just not sure which business entity formation would be best for 3 people involved. I'm reading a ton about LP, Corporations, LLC's, then S/C Corporations, REIT etc. but still confused on which to file under.

Any lawyers of CPAs have solid advice for different scenarios where one business entity formation works over the others? 

Thanks!

[Eamonn McElroy]

It really depends on the facts, circumstances, and goals of the venture as well as those of the owners.

In general, Ashish is correct, avoid a corporate tax entity -- S or C.  But first, you should determine who is bringing what to the table and how the venture is going to operate.  e.g. who manages the day-to-day, who is merely contributing capital, how distributions are handled, how profit and loss allocations are handled, buy-sell agreements, etc.

Make sure you talk to your advisors.  BP is a good place to brainstorm, but you should always have the deep conversation with your professional.

Although it is cheaper to refi outside an LLC with a non-commercial mortgage, you'll want to talk to your professional about the impact this will have on LLC members who aren't on the mortgage, as they might not get debt-basis if only one member is on the loan.