When it comes to business, different kinds of organizations could be set-up. This helps determine the extent of liabilities of the owner/s, as well as, how the division of assets and contribution of investments are done.
The simplest form is called the single proprietorship. Proprietors are sole bearers of the liabilities involved in the business. However, the owner alone can pocket the profits. There is also partnership. This may be composed of two or more owners. In here, profits and losses are shared among the partners or owners. Moreover, if one partner withdraws or dies, the partnership will be dissolved and the assets will be liquidated. There is also an organization called a corporation. In here, the owners and the corporation are separate legal entities. Owners are called shareholders as they invest through stocks and liabilities can be absorbed by the entity. If one shareholder bails out, the corporation will continue to exist.
In real estate, rental business can take form of any of the three mentioned above. Most of the time, landlords run as single proprietorship. However, there may be times when landlords would plan to engage in an organization where they could both benefit from tax and other legal problems. They enter in an organization that is considered a hybrid form of partnership and corporation. This is called the Limited Liability Company or LLC.
Why do property owners enter in this kind of set-up? As mentioned above, it has certain tax and liability advantages. If you want to know more, read on…
One of the best features of LLC is the “limited liability” provision. What does this means? This means in cases of legal suits and other claims against the business, the owners can protect themselves financially against the said claims. Creditors or other people cannot run after their personal assets. Unlike In sole proprietorship and partnership, the proprietor or the partners will absorb any claims against the business.
Another benefit of LLC is taxation. In here, the way an owner can be taxed is very flexible. If there are multi-owners, they can elect a corporate taxation. Why is corporate taxation an advantage? This is because taxes for the first $75,000 of the company taxable income is lower the rates of the personal income tax. As a result, everybody can save money from paying taxes this way. Aside from that, in LLC there is no double taxation. This means an individual cannot be paying both the corporate tax and individual tax at the same time.
Aside from that, forming LLC is not hard to do. A single proprietor can apply for LLC anytime just as long as he or she follows the steps and requirements in applying. If multi-owners, these people need not be too formal about it.
Judging the way this company operates, the ultimate benefit of having this structure is flexibility. A small-time business owners can enjoy flexibility in sharing of income and taxes while getting the protection against their personal assets. No wonder why people use this strategically to minimize liabilities.