I used to consult with entrepreneurs on business credit structuring and general business financing. Although not intentional, I seemed to attack real estate investors to my services. In most cases, these investors, or flippers as I like to call them, would approach my firm as hobbyist instead of business owners. At least that’s what they thought in their own mind. My first order of business was always, without question, to convince them of the errors of their ways. Real estate investors are business owners and the moment in which the flipper realized this, the easier it was for me to deliver my service.

Once I established their business-owner status, I would embark on the path of capital acquisition. Everyone needed money for their “next big project”, so I would try to get it for them. Before I started however, there were several compliance issues that I needed to take care of before I could package any of them properly for submission to lenders. Among the many compliance steps, and the primary topic of my article, is forming a separate entity for their business; something that separated them from their enterprise.

Some highlights on entity formation…

• Choosing The Right Entity. The most common entity structures are: Corporations, Limited Liability Companies, Partnerships and Sole Proprietors. There are several spin offs of these major types of entities and all of them have their place in business. Consult with a professional to find out which one is right for your situation.
• Tax Savings. Each type of business structure offers the entrepreneur several tax advantages. Careful planning with a CPA can pay huge dividends (figuratively and literally speaking). A well-crafted tax strategy, utilizing your newly formed entity, can save you a lot of money at tax time.
• Asset Protection. You will want to hold your properties in an LLC or Corporation. This will protect your corporate assets from personal legal issues that may trickle into your business.
• Liability Protection. You will also want the liability protection that both LLC’s and Corporations offer. Just like you wouldn’t want your personal legal problems to affect your business, you also don’t want potential business legal issues to nail you personally. This is where having the liability protection of a separate entity really helps.

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