In the United States, we have two types of partnerships, several types of trusts, and two types of corporations.
There are basically two types of partnerships:
• General partnerships - unlimited liability
• Limited partnerships - limited liability
The members of a general partnership are 100% liable. Limited Partnerships, on the other hand, limit the degree of exposure. If you put $100,000 into a Limited Partnership, that’s the total risk. You are only risking the amount of investment.
Generally speaking, trusts fall into the category of revocable or irrevocable. The Internal Revenue Code applies to all trusts, according to how they’re used. Typically, you will see
trusts used in estate planning and asset protection.
There are two types of companies in the United States:
• Corporations
• Limited Liability Companies
Corporations have been around a long time. They are perpetual in nature and owned by shareholders. Limited Liability Companies (LLCs) are a form of a hybrid imported into the United States about 20 years ago. The LLC is a popular entity, because it limits liability and has many tax choices.
LLCs
Limited Liability Companies are perfect for real estate investors. The typical sole proprietor who owns property in their own name or does business as (DBA), are the ones who have the most exposure to lawsuits, because they are the easiest targets. They also have the greatest amount of losses and are the target of most tax audits.
Why should we use a company? The financial advantages and tax savings, combined with asset protection – putting distance between you and that potential plaintiff - are the primary reasons to use a company.
Corporations
Corporations, as an entity, have been around a long time and are effective when used for the right reasons—usually to operate a service business. However, if you are going to own real estate, using an LLC is a better choice All corporations are born as a C corporation. A C corporation can be changed to an S corporation. A C corporation can be owned by a Limited Partnership.
Subchapter S corporations have the flow-through tax advantages, but they also have severe restrictions in terms of ownership.
The corporate veil is what protects you from lawsuits. However, the veil can be pierced if the corporate rules stipulated by IRS code are not followed. Corporations require a lot of formal procedures and documentation. To protect the corporate veil, you must have and document
board meetings. Resolutions must precede actions taken by the corporation.
One way to help protect your corporate veil is by accumulating business credit. You don’t just open a business one day and get a $500,000 line of credit the next day. You need discipline and to focus on doing it the right way.
You can get there faster than you think when you set up your business the right way and apply for credit after you get established. The biggest mistake people make in the area of business credit is that they apply for a credit profile with Dunn and Bradstreet too soon.
Before you apply for a credit profile with Dunn and Bradstreet, make sure your business phone is listed in the White Pages in the name of the business, not you individually. You must also register your business license— they will check.
Business credit helps separate personal and business credit, so that the company can eventually qualify for its own credit.
Author Resource:-
Don Burnham is an entrepreneur, author, real estate investor, teacher and speaker. He is CEO of the International Association of Seminar Professionals (IASP) and CEO and co-founder of the Wealth Restoration Institute, LLC, at http://www.weknowthewayback.com
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