The Basics: C-Corporation Ownership:
Entity is owned by shareholders, with no minimum number Accommodates multiple types of stock (i.e., Common or Preferred) Distributions must be proportionate to stock ownership within each
class
Liability: Stockholder’s liability limited to amount of capital contribution Therefore, protected from corporate creditors
Tax Considerations: Taxed at both the corporate and stockholder level
The Basics: LLC Most Common for Foreign Investors
Ownership: Instead of Stockholders, LLC ownership is determined by Membership Members can include individuals, corporations, or foreign entities/individuals Profits do not need to be distributed according to ownership percentage
Liability: Members enjoy limited liability protection,
Liability potential is generally limited by a Member’s investment into the LLC Membership Interests is generally protected from the claims of creditors
Advantages: Not subject to “double taxation” like a C-Corporation Flexible Corporate Structure (i.e., ownership, agreements, distributions) Less corporate formalities
No requirement that management be by a board of directors
Available to Foreign Individuals and Entities (unlike other corporate forms)
Example: Unequal Distribution Real Estate Ventures, LLC
Partners agree to Equal Ownership
BUT, only Lucas and Juliana actually work the business
Nicholas is the “nervous” investor who only invests
In a C-Corp, all profits would have to be shared equally in same class
But, an LLC Operating Agreement can grant Lucas and Juliana greater percentage in profits than ownership interest Lucas Juliana Nicholas
Example: LLC Liability Real Estate Ventures, LLC enters into a
contract with Harper Properties, Inc.
Real Estate Ventures breaches the contract
Harper Properties sues Real Estate Ventures for USD$1,000,000
If LLC formalities were followed, Lucas, Juliana and Nicholas need not worry
Personal Assets remain protected
Note: Real Estate Ventures’ assets are also protected from personal liability of its members.
Other Aspects of an LLC Some states require more than one member for full
extent of protection Example: In Florida, to properly maintain limited liability, an LLC
must have at least two members Still protected from company debt in single member LLC
But, personal creditor may foreclose upon your interest in a single member LLC if the judgment creditor shows that it’s judgment will not be satisfied within a reasonable amount of time.
Subject to self-employment tax for members who are actively involved in management of company Exception is for rental income, as such income is treated as
passive income for real-estate ventures.
Florida, LLC vs. Delaware, LLC
Florida Delaware
State Corporate Income Tax
5.5% of taxable income over $5,000.00
8.7%
Personal Income tax None 2.2% - 6.75%
Franchise Tax None Yes, based on size.
Annual Entity Fee $138.75 Fee $250.00 tax
State Sales Tax 6% None
Dedicated Business Court Not really. Yes.
If you’re buying in Florida, a Florida company probably makes most sense.
Conclusion: What Entity and Where? The Answer:
It depends on your particular circumstances.
BUT, it is not as easy as filing out a form on-line and forgetting about the rest. If you want the full protection of the corporate shield, you must follow ALL corporate formalities.
Call or email for further information: Alexander D. Brown, Esq.
Office: 954-760-4909
Email: [email protected]