Questions about Business Structure, RealEstate, Employment etc

Discussion in 'Small Business Helper' started by nas, Sep 12, 2004.

  1. nas

    nas Guest

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    I'm interested in forming two business entities:

    Business Entity A - This would be for investing into real estate, specifically, rental properties.

    Business Entity B - This would be an online retailing company. All the development work would be outsourced & for the first year or two, I don't expect to see much revenues, if any.

    My situtation - Currently I'm working full-time with a telecommunication company & am on a H1 visa. I intend to keep my current day job. And because of the immigration laws, I can't be self-employeed by any of these two corporations/LLC.

    So my questions are:

    1. In case of Entity A (RealEstate), can it operate without any employees? Ofcourse I would be doing some voluntary work. Would IRS accept this?

    2. Entity B (Online Retailing), I'm starting this along with my brother who is an American citizen. Can this business also operate without any employees during the first year of its operation? The first year (maybe two) is the development phase & all the work is outsourced. So as such there is no need of having any employees during this phase until we start generating revenues.

    3. What kind of business entity should each of these be? Corporation or LLC? For corporations, it can only be C because for S, all shareholders need to be citizens or residents. So the choice is between C-Corp & LLC.

    4. If I do form a LLC, can it be changed to a C-Corp after a year or two?

    5. In case of Entity A (RealEstate), I've heard that there won't be any tax on the profit made by selling a property if the profit is invested in buying a bigger property. Is that correct?

    Thanks for reading my post. Hope to hear from you.
  2. tsbhelper

    tsbhelper Small Business Helper Forum Moderator

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    There are some special rules and regulations regarding foreign nationals actually forming U.S. corporate entities. There would be some amount of research into both corporate law, and probably the tax code as well, to answer Question #1.

    As I said in my web page on Accounting, the scope of the web site and also this forum does not extend to corporate accounting. Additionally, corporations are treated differently than individuals tax-wise. This is also considerably beyond the scope of what I intend to deal with here. My feeling on this is that you need an expert on corporation law with a background in accounting to answer this question, and unfortunately you will probably have to wind up paying for it.

    Question #2 I can answer... There is no requirement I am aware of that a corporation must have employees. There are requirements for officers, but nowhere have I found a requirement that they be employed by the corporation. Again, the regulations regarding this are complex and somewhat difficult to interpret. Additionally, these rules change from time to time. It has been a while since I have been actively involved with a corporation, so you need to independently confirm this, don't take my word for it.

    #3 - My choice would be an LLC, simply because the accounting requirements are not quite so complex.

    #4 - It is my understanding that you can change from an LLC to a S type corporation, but am not sure about C type. Probably you can, but again, this question is above the scope of what we are dealing with here

    #5 - The part of the tax code which refers to "trading up" or "rollover" investments in real estate does not exclude corporations from this advantageous tax treatment, as far as I know.

    In summary... the questions you are asking are good questions, and I appreciate your interest in this forum. Please be aware of the initial caveat on the main page of the web site. "Free advice is worth just about what you pay for it". Check it out before you actually base any decisions you make. At this level of difficulty and scope of question, likely you will have to pay for it, but again, looking at the dollars you are likely to be putting into this, it will be worth it to you just to have the peace of mind it will give you.

    The Small Business Helper
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  3. nas

    nas Guest

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    Thanks so much for your reply. Yes, I'll definitely be consulting a lawyer and a CPA but wanted to be well informed before doing that.

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