LLCs, partnerships, corporations, sole proprietors, what's the rights that type of entity for your syndication, or fund? Today we're gonna do a video that's a blast from the past, it's a couple years old, but it's still very relevant and very valid and up to date information. So it is a discussion about how you would choose your entity type. And that entity type that would fit for your syndication or fun, I hope you find it useful.
We are going through the course specifically, we're talking about company and even more specifically, we are going through foundation. So today segment we are discussing entity type, and what type of entity should you be forming? So you've heard lots of different things about corporations LLCs, everybody's got an opinion DBS. So we're going to go through what each of those look like. And then we're going to talk about how exactly you choose what makes the most sense for
you. Give me a little bit of advice and feedback on what the next steps are and who you'd want to talk to, to really firm up that decision. And then and then you're going to have a pretty good guidance on how to do it. And then ultimately, you'll make a decision on on what it's going to look like.
Now, these types feed back into your structure. So each of those entity types, that management entity that you're going to form, it might be an LLC, it might be a corporation, the the buildings themselves, they might be LLCs, they might be corporations, you might even want to do them as DBAs, though I doubt that that you would actually want that. So let's talk about those different types that there are. So start us off,
we've got kind of the simplest, we've got DBAs. So the DBA stands for doing business as these are normally filed in your local city, or your local municipality. Basically, it just lets them know that there's a fictitious name that you're going to be using, and associated with business. This is everything from your sole proprietor, it could be a partnership, but DBAs are or this type. The other type is, is partnerships themselves. Again, that gets filed, typically it
gets filed at the local level to get a name associated. But this really depends on your particular state. So in California, if you're going to have a general general partnership, you actually don't need to file anything with the state. Not all states follow that sort of methods, some do require that you file partnership agreements with them. So you need to check on what your local rules are, if you decide ultimately that a partnership oops, makes the most
sense for what you're going to be doing. The next type is an LLC, LLC stands for limited liability corporation. These have been around since the 1970s. It was an alternative that came out of smaller companies not happy with all the requirements in order to act as that corporations were being held to. So they are a little bit simpler. And they have some different nuances with those as well. Lastly, we have corporations. So you a corporation is its own entity as
well. It gets filed with your state. And it is a it's a very common mechanism. You've I'm sure you've heard of them. So you may be asking yourself, Well, why didn't I write S corp or C Corp here. So S corp and C Corp are actually PACs, ways of filing taxes, they have tax implications. They don't have actual implications as it relates to an actual property itself. So you may be surprised to learn that an LLC can be an S
corp, or it can be treated as a partnership. It's really up to you and how you choose to do that basically whether or not you make an S corp election with the IRS. So that's why we didn't do those. We will be talking a little bit about tax strategy, but not a lot in this because really the best one to answer that. It gets really specific for what your own particular needs are. And so for that probably you'll want to talk with the accountant that you've already identified or will
identify as part of your team. We'll be talking about teams in a later on segment as well. So these are the four main types of entities that we're going to go through. So the first question that we ask ourselves is, how many owners can there be. So this will kind of rule some things out for you, sometimes it won't. So DBA is one person. So it's always one person, that's who it is, it's a sole proprietor acting as one person, a partnership always requires two or more people in order to
be a partnership, you can't be a partner alone. So it's two or more. And you actually can be, have one person as an LLC, or as a corporation. So so if you have more than one person, that kind of rules out DBAs, but all the others are on the table. So now let's talk about asset protection. Oops. So asset protection is very important. So there are there are two kinds of asset protection that we like to talk about, we have what's called inside out and outside in. So
let's write that down. Inside Out. So inside out asset protection is the is the protection that you would have, as an individual, as the manager, or the main executive, inside of the company, to protect you from outside from the outside. So it would be, you'd need to make changes to the outside. So say you have a huge amount of debt, whether or not you'd be able to be relieved that liability is what we would considered outside, inside out asset
protection. And outside in is the opposite of that. So it is say there's a lawsuit taking place, and somebody is suing the LLC, or the corporation or whoever, whether or not that protects you from liability against them. So as far as DBAs, there is no asset protection whatsoever. It doesn't exist. In terms of partnerships, this is where it gets a little bit more
tricky. So we have two kinds of partners. We have general partners, and we have limited partners, the general partner is the one who makes all the decisions, who does all the work. And the limited partner is the person who mostly just invested the money and just sits back and lets the general partner do the work. So as far as asset protection goes for the the limited partner, it is good asset protection, but there is no asset protection for general partners at all. Now for the
LLC, we have an LLC is good. For Inside Out. It's good for protecting against that. And it's probably less good. But it's not as well tested, but it's probably somewhat less good. About for outside in. And we can get into much more detail about this in a consultation, then we're starting to talk about charging orders and things like that, and different kinds of LLCs in different states and how those affect for this
purpose. It's pretty good. And I wouldn't rule out asset protection for an LLC, I wouldn't base asset protection, like getting rid of an LLC, just because of that. For corporations, corporations are good for Inside Out liability. It's very easy to just file just basic BK or bankruptcy a corporation and the debts of that corporation go away. It is bad for outside in as long as it is a closely held corporation.
So if if you are the only person in the corporation or it's extremely small, but really you're doing all the work, you really aren't going to have very great outside in protection. So you probably are going to get the most amount of asset protection from the LLC. In terms of governance and management And, you know, this is what we're talking about here is how easy is it to get through all the paperwork and, and
comply with all the legal formalities. For DBA, it's easy, there's very, very, very little, maybe you need to update something every year or every few years, with your local municipality. And that's it. With a partnership, it's also pretty easy, it varies state by state exactly what needs to be done. So we'll just put pretty easy. And then in terms of an LLC, it can be easy to complex. This is where it comes down to whether the LLC is member managed, or, or, or managed or
managed. So a manager managed LLC is where the manager makes all of the decisions. So if you or your entity is the manager of the managed LLC, you're the one making all the decisions and you just take to your investors as to a vote as necessary, as required by your operating agreement. In general, the it's pretty easy to keep them up to date, keep them things going, it really becomes down to what your your operating agreement says.
And unless there's some sort of specific rules of your state in order to comply, so many states, they don't require a board of directors, they don't even necessarily require any executive officers. And so that can be pretty simple. Whereas a corporation is almost always complex, you typically need a board of directors and officers. Now in terms of maintenance costs, that's going to be very specific on your individual
states. So you really, you could draw out and find out through your local state, what the costs are going to be for each of these. And then you've got your multi state issues like say you have, you know, everybody thinks, Well, you file a corporation in Delaware, that isn't always the case. If I file a corporation in Delaware, and I'm doing business here in California, I still have to file with the state of California, I
still have to pay my taxes with the state of California. And, and I have to let the California know that this foreign corporation this Delaware corporation is doing business in its state. And it's because of that rule, we're not going to go into choosing jurisdictions beyond the easiest way to choose a jurisdiction is to just put it wherever your company is, there is nuance in there. And there may be reasons why choosing a different jurisdiction would be better. But that's outside of
the bounds of this discussion. So once you've got the your, your kind of this matrix in mind, the next thing to think about is how to make the decision on what to file us. So here, I would really start thinking about the entity that you're going to be doing. So let's start with the managers entity right now. So what's most important out of this to your to your actually, one more, let's put one more topic here, because this can be important too. So let's put record keeping as
well. Record keeping for DBA is extremely easy. I would say most of the time, it's easy to do a partnership, it's pretty darn easy to do a LLC, but we'll put moderate just to differentiate it from easy. And by that I mean, you're going to have to file a Statement of Information probably every year with with the state. But it's very simple. It's a one page form almost everywhere. So it's pretty simple to do. Now for a corporation, it's much more complex. You need to file you
need to have minutes of regular scheduled board meetings. To make and spell. You still need to do the statement oops, the Statement of Information. And you need to have records of any sort of decision make decisions that take place. Now if you don't do that your corporation could very easily be determined by court as not being a legitimate Corporation, and you'd get get rid of any sort of asset protection that you had from the very beginning anyway, that's why it's very important
to comply with the record keeping rules. Now, when it comes time to make a decision about what you want to what kind of entity you think you need to form. I don't think there's, I don't think there any attorney would ever recommend anybody do something as a sole proprietor, or even as a partnership for something like this. A, perhaps there are good times for sole proprietor for a partnership, especially when you need extremely low overhead, you need to be very easy, and you want
taxes to be very easy. That's pretty much how we'd make the decision here. But this is just generally not going to be the best choice for you to do a DBA or partnership. Now an LLC versus a corporation, it really comes down to a few things. And what I think most way I would think about it is how easy do I want my governance? And how easy do I want my record keeping, I'm getting about the same amount of assets, about the same amount of asset protection a little bit more with an LLC. So it's
actually got a really great structure for me. And last. The only exception would be if I really am going to be using this kind of structure anyway, for a board and for officers. Or maybe it's, it's something that your investors would rather see because they're more familiar with corporations as well. So almost always for the property itself. You're going to use a an LLC, because there's so much easier to put together. And the paperwork is so much less that it's it's just generally easier.
In terms of a corporation. In less if, again, my my thoughts would be well, if you wanted to do put together a C Corp, because that's what your investors were used to. And that's what they were requiring. Now, C Corp is a type of taxable entity. So it would be a corporation but filed with the IRS that you would be taxed as a C Corp. And it has different tax rates, it has different opportunities for deductions. LLCs and s corpse have an opportunity for 199 A deduction.
And your accountant can walk you through that if that's appropriate for you. They also can walk you through whether or not it makes sense because corporations in general are not subject to self employment tax most of the time. So it really would be come down to what do I if I need to file a C Corp as a C Corp, I'm going to have to do it as a corporation, I'm not going to have that availability in an LLC. And really, what kind
of level am I putting it into? And is this something that I want to really make something easy for me to do and be able to trade and move people in and out of, for real longevity, I'm probably going to choose a corporation, because it's just better set up for that sort of thing. But if this is something where I'm going to just manage it, I'm not quite sure the long term future of it, whether it's just going to be five years or
whatnot, I might very well choose an LLC. So this, so I would go through and rank those and just kind of decide, well, this is important to me, this is important to me, this is important to me make that decision, and that's your decision, you're gonna have it's quite easy to do different entity types for different types of entities. So your properties will will almost always be LLCs. But perhaps your your management company will be a corporation, and that's totally okay. So go
through that, think about that make a decision. And the next step then really is to get that filed. And so I would file that your management entity sooner rather than later. That's what you're going to be building your name and reputation under. So that's really the first decision you've got to make. And when you
do that you have a limited time to make an S corp election. So talk to your accountant, either as you're doing it or very close in time to when you're doing it, to see to get their input on whether it makes more sense for you to be taxed as a partnership or taxed as a escort. I hope that has been helpful make those decisions, write it down, and we will see you in the next session. I hope you found have video helpful while LLCs are probably the most likely candidate for what syndication
structure or fund structure you're going to use. As you can see, it's not the only choice. If we can help you choose a break kind of entity for you and make your syndication or fund journey better, please give us a call. My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group.