While we’re not silly enough to make the claim that absolutely every real estate professional should make creating a corporation his or first order of business, here’s a word (or more accurately, a sentence) to the wise. Create a corporation! While there can be drawbacks to becoming a corporation, as Jason Hartman can attest, the benefits far outweigh them. Let’s take a look at each in turn.

Pros
Any time you’re dealing with the public, there is the chance a client is going to have his ear turned by an outraged family member or ambulance-chasing attorney. They’re going to spin a convincing tale about how you’re either evil or incompetent – maybe both – and, before you know it, there’s a summons sitting on your desk informing you a lawsuit has just been filed.

Well that’s just great. What can you do? What you should have done, mi amigo, is create a corporation for your real estate business before you sold the first property, because a corporation provides almost ironclad legal protection for your personal assets. No matter how negligent you may have been, a court judgment can’t take anything other than company assets – usually. While there are other reasons to incorporate (credibility, fundraising, tax benefits), limited personal liability is the most important.

Cons
The drawbacks to starting a corporation are primarily administrative, chiefly related to fees and recordkeeping. There is the possibility of “double taxation,” but that only applies if you start a C corporation; avoid this by electing to organize as an S corporation instead.

Fees: There is a charge to file Articles of Incorporation with your state which might run into a few hundred dollars. There are also ongoing fees associated with a corporation that you won’t find as a sole proprietorship or general partnership.

Records: The recordkeeping tasks associated with forming and maintaining a corporation aren’t terribly onerous but they do exist. If you don’t consider yourself an attention-to-details sort of person, don’t worry. That’s what lawyers and accountants are for. Turn the whole mess over and let them sort it out.

Keep in mind we didn’t say that forming a corporation would be the end of all your worries until the end of time. However, being able to avoid the possibly catastrophic specter of an assets-devouring lawsuit is probably worth a bit of fidgeting with paperwork. (Top image: Flickr |  || UggBoy♥UggGirl || PHOTO || WORLD || TRAVEL ||)

The AIPIS Team