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) 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

The Limited Liability Company

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)

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

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.

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.

Florida or Delaware?

Florida, LLC vs. Delaware, LLC

Florida Delaware

State Corporate Income Tax

5.5% of taxable income over $5,000.00

8.7%

Personal Income tax None 2.2% - 6.75%

Franchise Tax None Yes, based on size.

Annual Entity Fee $138.75 Fee $250.00 tax

State Sales Tax 6% None

Dedicated Business Court Not really. Yes.

If you’re buying in Florida, a Florida company probably makes most sense.

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