First things first, I did want to go to law school, but didn’t, so here’s my disclaimer: I am not a lawyer, which is why I recommend you get advice from an attorney if you have questions about incorporating.
But what I can tell you is, when you incorporate, it is a very easy, simple process. You can do it all online and form a corporation in less than two hours – in your pjs! It really is very simple. You could also have an attorney help you.
Why Would Anybody Incorporate?
The main reason is to shield you and your family from liability. Unfortunately, in this day and age lots of people sue. Did you know that the United States has the most attorneys out of any country in the world? We are a sue-happy country. So, if someone slips and falls on your property that you own as Jane Doe, that person is going to sue Jane Doe – which is you. This opens you up to be liable and risk everything you have. Which means, for example, if your husband has a nice 401K that he’s invested at work, that could be involved in this lawsuit.
Without incorporating, all of your personal assets including your husband’s 401K, your kids’ college savings account, and other things you have worked so hard for could be put at risk. Choosing to incorporate, can shield yourself and your personal assets from that kind of liability.
What Does Incorporating Look Like?
Well as I mentioned before, it’s simple to do online and you will get step-by-step instructions on how to complete incorporation and can just take a matter of a couple of hours.
What incorporation means is that you will now invest in properties and own them by putting that corporation’s name on it rather than your own. Everything that runs through that property – rent, maintenance expenses, basically anything related to that property – will be associated with that corporation. This means that the rent gets paid to the corporation, which in turn means you must have a bank account in that corporation’s name.
You will also need to pay taxes as a corporation, so, yes, you are going to file a tax return at the end of the year for your corporation too. However, you don’t have to file forms related to employees unless you are going to have full time staff employees, but you can still pay yourself for owning your investment. In other words, when there’s a profit that comes out of it, you can draw it out as an owner share or an owner dividend because your company has made a profit. You can always talk to a CPA about how this works.
Listen, if a lady can get a million dollars for spilling a hot cup of coffee in her lap, I am sure someone can sue you for slipping and falling at one of your rental properties. Make sure you are protecting yourself.
1 thought on “To Incorporate or Not to Incorporate? It’s a Wise Idea”
Great article. Hope to apply this advise to my personal rentals.
Nick Mostert/Gaff’s Realty