Thinking about forming a corporation

Carl Johnson

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I bought liens on a few pieces of property at a local tax sale. It will be about a year before the lien comes due and I can petition the court to have the properties transfered to my name but between now and then I was thinking that it would be a good idea for me to form a corporation of some sorts to deal with these kinds of transactions. That way if somebody breaks their neck on the property Carl Johnson inc gets sued instead of Carl Johnson's house and savings.

Is it as simple as coming up with a name that hasn't been taken and paying a few hundred bucks to one of those protect your assets by calling us to set up a corporation 800 numbers to do the paperwork for me?
 

SethH

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Your best bet would be to sit down with a lawyer for a couple hours. If you've done your research ahead of time you should be able to get everything done in about 2 hours which will only cost $200-$300. I would guess that you'd want to setup an LLC, but the lawyer should be able to give you specific advice for your situation.
 

Eric_L

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First - no, it is not as simple as calling an 800 number. You have to have a board and regular meetings etc. An S corp is considerably easier and more likely to be your answer. Adequate insurance is also a part of the solution.

Depending on the value of your outside assets you may or may not want to consider corporate protections. You could go on the cheap and try getting it together with boilder-plate online docs - but you will get what you pay for. If you are unwilling to risk your assets on the possibility that someone will sue you for an accident on your property then you should also be unwilling to risk them for the possibility that the documents are inadequate to suit your needs.

As I often say when I am training bankers - "there are lots of cheap ways to lose money." Good advice is never cheap - sadly it is also seldom easy to find. Just because someone charges alot does not make it good either. I know that's almost contradictory advice - but it's the truth.
 

CameronJ

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Carl,

You can form a corporation in just a few minutes. In Colorado, you can fill out all the forms you need to on-line. The question is do you want to do it in such a fashion?

I have some LLCs that I've formed over the years. Some I've done the quickie way, others I've used the assistance of attorneys. I used an attorney for my last one (planning on buying some commercial property) because there's another member (my best friend) and we wanted to make sure that we had as much in writing to avoid disagreements and misunderstandings later. That being said, I probably would have used the attorney even if I was forming it myself just because I feel that real estate always makes things more complicated.

Eric - from my discussions with attorneys, as long as the corporation is properly formed then you do get the normal legal protections (generally). The one thing I've always been told to be very careful about is to keep the business of each LLC and my personal finances completely separate - something about making sure the corporation actually acts as a separate entity. I'm curious about any comments you have on this.

Eric brings up two other fantastic points. First, make sure you think through insurance. It may not be necessary now (as you don't have title to any of the properties) but will definitely be necessary down the line. Even if your corporation sufficiently protects your assets, you don't want what happens on one property to effect what happens on others. Also - the quality of advice. Always important to remember that advice received on an internet forum does not qualify as quality advice.

Another thing to consider is the type of corporation - the different types of corporations have different tax implications. Make sure you research and understand those implications prior to forming your corp.

Lastly - every state has different requirements for forming a corporation. Check with your secretary of state's office for detailed requirements.
 

Marc_Sulinski

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I am trying to do something similar with a rental property. The question I have is how to get the property into the LLC's name. Is it as simple as finding a lawyer to do the paperwork? Does the mortgage also have to be in the name of the LLC? Will I have to pay transfer tax (2% in PA)?
 

BillSXT2002

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This is not legal advice, but I'd strongly consider insurance instead of forming a corporation in this case. You would, depending on state law, likely be a close corporation which would relax many of the traditional requirements of a regular corporation, but courts are pretty willing to open up close corporations to tort liability. It isn't a get out of jail (or paying out of pocket) free card. Not to mention, unless you specifically adhere to the "s" corp. rules, you could be double taxed if there is any income. Talk to an attorney and or a good accountant in your area.
 

Carl Johnson

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Thanks for all the tips. I've talked to a couple of local real estate attorneys and they both suggested that an LLC is the way to go.
 

Jeff_CusBlues

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Marc, I'm not sure what state you are in or what the laws are, but here in Indiana, you transfer property from yourself to your LLC by using the Quick Claim Deed procedure. This is done at your county courthouse.
 

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