Corporations are referred to as a domestic corporation in the state which they originate and doing business in and are considered a foreign corporation in any other state. Securing a mortgage on a corporate owned property may be more difficult than standard ownership. This is because many lenders that offer corporations mortgages may require officers of the entity to co-sign the mortgage note.
S corporations are another form of corporate ownership. Unlike standard corporations, which are required to pay taxes twice-once on corporate taxes and once on individual taxes-income derived from, s corporations only pay taxes one time. In this case, income goes directly to the individual. To file as an S corporation, shareholders must submit form 2553. If the corporation does not submit the required paperwork, the IRS will consider the entity a C corporation which will be subject to double taxation. S corporations must have no more than 35 shareholders and offer one type of stock. S corporations can only be filed by US corporations
LLC’s are not considered corporations however they can for tax purposes be taxed as a corporation by filing Form 8832.
Domestic corporations do business in the country in which they originated in. The tax rate that applies to them is different than foreign corporations and LLC’s and in return must pay a fee or import tax when bringing a product into the United State’s.
Corporations and Owning Real Estate
Corporations can own real property. The laws regulating corporation ownership of real property are dependent on the laws of the state; however, a corporation in any state is held by a legal entity and not individuals.
Individuals or partners might consider purchasing real estate through a corporation for several major reasons, including reducing liability, minimizing risk, and maximizing potential. Decisions regarding property held by a corporation must be made by all board members, unless the company is a of a larger scale and has different arrangements.
Shareholder liability is reduced or eliminated in a corporation because assets are not held personally; therefore, an individual cannot be held liable for decisions made by the corporation. For this reason, many individuals prefer corporations over other entities. After 2002, however, liability for officers and directors has increased and board members can no longer claim full immunity.
That said, there are still significant drawbacks to corporations owning property. One major disadvantage is the fact that there is double taxation on corporations. The first form of taxation levied is a corporate tax and once the income is distributed to shareholders, the individuals are taxed again. Federal tax law varies based on the amount of people in the corporation.
A hypothetical example of when property held by a corporation may be detrimental is if a corporation makes a profit on an appreciating asset after it is sold. The gain will be taxed using corporate tax rates, which are higher than most rates and then taxed a second time against the individual earning a return. Although individuals and partners form corporations to avoid liability, corporations may actually increase liability because the actions by one or some of the officers may negatively impact other members. If the corporation is sued, property held by the entity may be subject to judgment, liens, and potentially foreclosure, simply due to the actions of one or more board members.
