Selecting the appropriate entity type (C corp, S corp, LLC, Partnership, etc.) is crucial when your goal is to maximize revenue and minimize the impact of federal, state, and local tax exposure. There are numerous factors to contemplate when selecting entity type, including restrictions on both the number and citizenship of owners, the potential for early-stage growth, desire to allocate differing voting and distribution priority to owners, operating formalities, management, and tax implications (mitigating employment tax).
Business Formation Services
We take a comprehensive approach to a client’s business life cycle. This begins with formation services including registration with the Secretary of State, registration with federal, state and local taxing authorities, drafting of corporate-related documents (bylaws/operating agreements, buy-sell arrangements, voting restrictions, etc.), and operating guidelines. Our internal registered agent service (JDM Agent Services, LLC) tracks annual reporting requirements so business owners can rest assured that they remain in compliance while focusing on managing and growing their business.
Business Formation of Partnership and LLC
Our real estate investment clients commonly utilize the partnership form to preserve capital gain tax treatment on disposition, or to permit deferred tax-free strategies such as like-kind Section 1031 exchanges and LLC "drop and swaps." We also have participated in reverse "Starker'' like-kind exchanges. In essence, the partnership form lends itself to the type of flexibility needed in real estate investment.
Often, we meet a client who is not certain about the long-term prospects for a new business venture. In such circumstances, an LLC is a time-tested and simple structure to deploy. However, if you anticipate a long start-up period before any profits are distributed, our business lawyers have suggested clients consider "C" corporations. C corporations are taxed at a lower rate compared with an individual. Therefore, more after-tax income remains for reinvestment.
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