Running a real estate business can provide an individual with a regular stream of income. However, there is a degree of risk involved in investing, repairing, leasing or selling real property. Those aspiring to enter the real estate sector typically need to establish a formal business entity as a means of protecting themselves from the liability that comes with business operations.
There are a number of different business structures that people can establish to minimize their liability when moving into the real estate sector. The three options below are among the most common structures utilized by those working in the real estate sector in Oklahoma.
A limited liability company
Limited liability companies (LLCs) are a popular business structure for a reason. LLCs are a formal structure that separate business owners and operators from the company itself. LLCs can have multiple members, allowing several investors to work cooperatively. They can also have a sole member running the business. In either scenario, there is a degree of separation between the people running the real estate company and the business, which limits personal liability.
A series LLC
It is possible to establish a specialized LLC that offers enhanced legal protection. Oklahoma statutes allow for the creation of a series LLC. A series LLC is similar to a traditional LLC in that it creates a separate business entity to hold valuable assets. There is a parent LLC which people might also call a master or umbrella LLC. This main entity operates numerous smaller cells or series. Each separate entity can hold different assets, creating enhanced protection from liability related to high-risk assets. Owners concerned about facing personal liability have protection from creditors or plaintiffs who bring lawsuits piercing the corporate veil to hold them personally accountable for organizational debts or company liability.
A corporation
A corporation is a highly-structured business entity typically owned by a number of shareholders. In scenarios where the party starting the business aspires to bring in outside investors or to grow the company substantially, they may choose to establish an incorporated entity. People could establish a C corporation or an S corporation depending on the scope of the business and the funding needs of the organization. Corporations are a formal business structure that can provide significant tax benefits. However, there are also more regulatory requirements imposed on corporations as opposed to LLCs and series LLCs.
There are benefits and drawbacks to each type of business. Reviewing the plans for a real estate business with a skilled legal team can help people determine which option might be best given their aspirations. Real estate professionals hoping to start their own businesses need to choose an entity type that aligns with their long-term plans for their organization.