Disclaimer
The information in this presentation is intended only for general informational
purposes. No attorney-client relationship is intended by presenting this information. You should consult with your attorney and
accountant regarding your own circumstances.
Real Estate is a business
1. There are assets
2. There are contracts
3. There are government regulations
4. There are separate tax rules
5. There are big dollars at work
Build a Better BusinessBuild a Better Business
1. Select the correct business form
2. Operate the business correctly
3. Create a good succession plan
4. Utilize best practices
5. Make all planning work together
1. Selecting The Correct Business
Form – Issues to Consider
Limited liability
Tax minimization
Ease of use
Type of activity
Business entity options
Legal Entities
1. Corporation
2. LLC
3. Some Partnerships
Non-entities
1. Sole Proprietorship
2. Trust
3. Some Partnerships
Selecting The Correct Business Form -Corporations
Limited liability
Many terms set by law
Requires documents and filing
Tax options
Can be publicly traded
A legal person
Selecting The Correct Business Form - LLCs
Very flexible
A legal “person”
Requires documents and filing
Limited liability
Tax options
Selecting The Correct Business Form -Partnerships
Numerous variations
Essentially a contract
Some have limited liability
No tax options
Varying requirementsto form
Very flexible
Selecting The Correct Business Form – Sole Proprietor
Selecting The Correct Business Form – Sole Proprietor
• Can be done with an assumed name
• No need to file anything
• No liability protection
• No tax options
Selecting The Correct Business Form - Trust
Selecting The Correct Business Form - Trust
• Not a business entity – typically used for estate planning or other purposes
• Typically no limited liability
• Loss of control
• Complicated
• Usually no tax options
Selecting The Correct Business Form-The Bottom line
LLCs are far and away the most popular1. The most flexible tax options2. Flexible ownership options3. Flexible governance rights4. Limited liability5. Additional legal protections
Selecting The Correct Business Form – What About Joint Ventures?
Not a legal entity
Defined as “a commercial enterprise undertaken by several persons jointly.” Limited as to scope and duration but usually not as to liability
In other words, it is a contractual relationship that effectively creates a general partnership
Could be done with a business entity
Relationship should always be carefully defined and spelled out in writing
2. Operating The Business - Maintenance
2. Operating The Business - Maintenance
• LLCs, Corporations, and most Partnerships require regular maintenance
• Trust have varying rules on maintenance
• Sole Proprietorships do not require maintenance
Operating The Business - FinancesOperating The Business - Finances
• LLCs, Corporations, and Partnerships should have separate finances
• Sole Proprietorships can co-mingle funds
• Trusts impose fiduciary duties and co-mingling can be a problem
Operating the Business - Divided You Stand, United You Fall
If you own everything in one company or in your own name, one lawsuit can result in the loss of
everything you own
If you own things in separate companies, then only the entity involved in
the suit is at risk
3. Every Business NeedsA Succession Plan - Concepts
3. Every Business NeedsA Succession Plan - Concepts
• Business Succession Plan = Method to transfer the business from one owner to another
– Commonly include a buy-sell agreement
Every Business NeedsA Succession Plan - WhyEvery Business Needs
A Succession Plan - Why• Even new businesses need a
succession plan
– Do you want to be in business with your partner's spouse or children?
– What is your exit strategy?
– Protect yourself, your business, and your family from death or disability
4. Utilize Good Sales and Purchasing Practices – Know The
Facts
4. Utilize Good Sales and Purchasing Practices – Know The
Facts• Know your customers and suppliers
– Learn the correct legal name
– Know all owners
– Understand their finances and practices
Utilize Good Sales and Purchasing Practices – Use Good Contracts
Utilize Good Sales and Purchasing Practices – Use Good Contracts
• Use carefully written contracts
• Draft your own contracts when possible
• Have a lawyer review your contracts – before you sign
• Follow the contract
Utilize Good Sales and Purchasing Practices – Follow the law
Utilize Good Sales and Purchasing Practices – Follow the law
Make sure you comply with local zoning and leasing rules
Insist your contractors, managers, and suppliers do likewise
Require your tenants to follow the law and timely pay
5. All Planning Must Work Together
5. All Planning Must Work Together
• Business planning must compliment personal planning
• Make your business plan fit with your retirement plan, your financial plan, and your estate plan
• Ensure your advisors work as a team
Common Mistakes Investors Make
Select the wrong entity or no entity
Organize in other states
Sloppy bookkeeping and contracting
Fail to comply with state and local law
Do not follow good business practices