For a moment, let us forget Donald Trump, presidential candidate for the United States, and let us remember Donald Trump, real-estate mogul. Regardless of how you feel about his politics, he has had an exciting ride from investing and participating in the real-estate industry. His properties alone are worth millions of dollars, and he negotiates real-estate deals around the world. When you are operating your business with that much capital and when you deal with the enormous risk involved, there is no wonder why Trump Empires is incorporated.
What Does it Mean to Be Incorporated?
When one incorporates their business, all of the members and owners form a symbolic consolidated body to represent the company. In essence (legally) the corporation becomes a person at the face of the business. This “person” works as a shield to protect those who may have founded this corporation from being sued and sometimes prosecuted. As you can see, incorporating your business can provide critical protection for your business. But should landlords incorporate their businesses?
Should You Incorporate?
Landlords running operations with a few properties should not worry about incorporating, especially if they manage their properties alone. However, Landlords who work in conjunction with others under the same operation and also manage a large number of properties should at least consider incorporation. A general rule of thumb: the more complex your operation becomes, the closer your business should be to an incorporated status. Real-estate properties that are a part of a chain or brand are often incorporated. These chains often include hotels and apartment complexes, which have a series of diversified attributes that makes the operation more complex than other real-estate offerings.
Benefits of Incorporation
As I stated before, your company being incorporated provides an extra layer of protection. This protection can shield employees of a company from financial or legal troubles. For example: a food corporation may be sued for a significant amount of people having food poisoning from their products. Instead of the CEO getting sued, the company is getting sued. The company may have legal funds set aside for the purpose of legal action taken against them. The CEO might not have that kind of cash on hand. It also prevents their personal finances from being tied up in litigation. This means, the CEO’s personal life can go on undamaged despite a legal fight.
Being sued is never fun, but being incorporated means your entire company can sue another. Breaches of patents, or the theft of intellectual ideas,flood courtrooms filled with corporations looking to take back what is rightfully theirs. Being incorporated streamlines the process of establishing ownership of a particular item at the core of a potential lawsuit. This process is much easier and cost effective than a singular person suing another company over the theft of intellectual property.
Disadvantages of Being Incorporated
Of course, there is a flip-side to corporations being considered “people”. The fact is, people can be held responsible for their actions. People have to pay taxes, and since your corporation is a person, it has to pay taxes as well. Though during a litigation concerning your company, employees are not on trial, but being sued or being summoned to court is never a position a company wants to be in. If an unfavorable ruling is declared against your company, it unfortunately reflects the entire company, even though the problem might have stepped from a very small sector of the company itself.
How Landlords Should Proceed
The nuances that can be found in the real-estate industry can parallel those in other industries as well. However, landlords are dealing with properties, property rights, leases, and the rights of tenants. If they feel their operation is complex enough and a certain standard of risk, they should consider incorporating to protect themselves. Since Donald Trump’s companies are incorporated, he has the rights to license out his name and his brand, while also being able to distance himself from properties or deals that may have gone south. Landlords who may have a reputation or a brand to uphold should, without question, incorporate their businesses.
Small time landlords should relax and take it easy, because I doubt there would be any significant benefit to incorporating their business. The tax burdens and bureaucracy is not worth the time or money over a handful of properties that are being singularly managed with little difficulty.
Ultimately, landlords should only incorporate as needed. As with everything else, there are pros and cons to this restructuring of a business, and there is no use in taking unnecessary risks or going through impractical measures if the protections that incorporating brings will not benefit your return on investment.