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Incorporating in the United States

Incorporating in the United States. What type of entity and where?. Common Corporate Forms. The Basics: C-Corporation. Ownership: Entity is owned by shareholders, with no minimum number Accommodates multiple types of stock ( i.e ., Common or Preferred)

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Incorporating in the United States

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  1. Incorporating in the United States What type of entity and where?

  2. Common Corporate Forms

  3. 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

  4. The Limited Liability Company

  5. 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)

  6. 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

  7. 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.

  8. 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.

  9. Florida or Delaware?

  10. Florida, LLC vs. Delaware, LLC If you’re buying in Florida, a Florida company probably makes most sense.

  11. 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: adb@trippscott.com

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