When puchasing Illinois land for sale.
Ownership of Illinois land is holding "title" to it. The evidence of that title is the deed. The seller executes a deed to transfer title to real property and the bundle of rights that go with it.
The manner in which you acquire title has a bearing on legal ownership and on transfer in the event of death. Some types of title carry tax consequences. You should talk with a lawyer to find out your state laws and how holding title will affect you. Some states restrict the way parties may hold title, so all of these choices may not be available to you.
SOLE AND SEPERATE
If the property is in the name of one party and the other is not on title, the unnamed party may lose a voice in the say and control of the property, and possess no right to share future profits. Married couples who want to own real estate separately in some states must record a quitclaim deed from one spouse to the other.
Quitclaim deeds transfer or "quit" any interest in real property. The grantor may not be in title at all, so the grantee cannot assume that the grantor has any real interest to convey. However, if the grantor were, say, married to the owner of the property, signing and recording a quitclaim deed in favor of the spouse would transfer any interest the grantor may have in the Illinois property to the spouse.
Sometimes only one party of the two or more purchasers can qualify for the mortgage. It that event, it is common to add the omitted individual(s) by recording a quitclaim deed after closing. However, always seek legal advice because the loan may contain an alienation clause
Language in a mortgage or trust deed that allows the lender to call the loan immediately due and payable in the event the owner sells the property or transfers title to the property. Almost every loan today contains an alienation clause, which means title cannot transfer and a buyer cannot purchase subject to an existing loan without triggering a due on sale clause.
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
Each person owns an equal share and if one party dies, title transfers to the survivor, regardless of what a will may specify.
Joint tenancy requires four unities:
•Time. Each owner must receive title at the same time.
•Title. Each owner must receive title on the same deed or document evidencing title.
•Interest. Each owner receives the same proportionate and equal share of ownership.
•Possession. Each owner has the identical right of possession.
If one of the joint tenants sells or conveys the interest created in a joint tenancy to another person, the joint tenancy is broken, and a tenancy in common is created. Joint tenants cannot stop another tenant from breaking the joint tenancy.
TENANCY IN COMMON
(TENANTS IN COMMON)
Tenants in common share possession equally but may own equal or unequal shares of the home. If one party dies, unless the surviving party is named in the will, the decedent's interest passes to heirs.
Tenants in common share one unity. The right of possession. All tenants in common have the right to occupy the property, and neither party can exclude the other. There is no limit to the number of individuals who can hold title to one piece of real estate. An Illinois property held by tenants in common can be owned by two owners or 100+ owners.
In CA, for example, only married individuals may hold title as community property. Upon death, half ownership transfers to the decedent's heirs.
In community property states, if a married person acquires title sole and separate, it is still possible for the omitted spouse to acquire a community interest in the property, even though that name is not on title. This event is typically caused by co-mingling funds.
COMMUNITY PROPERTY WITH THE RIGHT OF SURVIVORSHIP
If one person dies, title transfers to the survivor, but during ownership, both signatures are required to encumber or sell the home.
This type of title does not allow either party to pass respective ownership to an heirs.
Some people establish trusts and transfer title to the trust to reduce taxes on the estate in the event of death. An estate planning attorney can set up a trust that is recognized by the I.R.S.
This type of trust should not be confused with an Offshore Foreign Trust, which unscrupulous financial planners peddle as a way to avoid paying taxes to the I.R.S. (see detailed article on trust deeds)
CORPORATION OR PARTNERSHIP
The legal entity owns the property, not the individual owners, and can result in tax consequences that may not be as favorable as some imagine. For example, corporations can be subject to double taxation (taxing the corporation and again taxing the shareholders). An S corporation avoids double taxation and is exempt from certain federal taxes. Always seek tax advice before forming a corporation or partnership.
Limited partnerships are managed by the general partner(s). The limited partners are not responsible for the debts of the partnership; typically the most a limited partner could lose is the limited partner's investment.
An S Corporation (Small Business Corporation) is a business elected for S Corporation Status through the IRS. This status allows the taxation of the company to be similar to a partnership or sole proprietor as opposed to paying taxes based on a corporate tax structure.
Pros of S Corporation Status
No Corporate Tax: The biggest attraction of this business ownership is the tax advantages. The profits and losses of the business pass through to the corporation owner's personal income tax. Like a Limited Liability Company, the tax "pass through" allows you to avoid "double taxation".
Reduce Taxable Gains: Selling your business can be part of your retirement strategy. An S corporation could have reduced taxable gains when the business is sold.
Write off Start-up Losses: In the early years of starting a business, you will have many expenses and losses. These can be offset against your personal income. A regular corporation would have the losses locked within the company and not applied to your income.
Liability Protection: S corporations offer protection against liabilities. However, liability protection is not complete protection. You can be personal liable for your actions. As well as, many lenders are now requiring personal guarantees.
Cons of S Corporation Status
One Class of Stock: Choosing an S Corporation status will limit your organization to issuing one class of stock. Not having the ability to issue different classes of stock affords a business less control over the company and limitations on the stock value.
Less Attraction for Outside Investors: Growing your company requires money. If you will need venture capital, the regular corporation structure will be a better choice. Venture capitalists will not want to see the pass through tax setup or a limit of 75 shareholders.
Tax Filing: Unlike a non-corporate business structure, you avoid corporate taxes but will still have to file a tax return every year.
Corporate Meetings: Your status is still a corporation with the requirements of having regular meetings and maintaining company minutes. Consider the added time in operating an S Corporation.
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Small businesses today are making the choice to form a Limited Liability Company (LLC) because they are easier to operate. Read Limited Liability Company 101 for more information on this topic.
How to Form an S Corporation
To change your corporation status requires the filing of Form 2553 with the IRS. To become a small business corporation, the IRS has several special requirements including:
•The corporation can have no more than 75 shareholders with a husband and wife counting as one shareholder. (before 1997 it was 35 shareholders)
•Shareholders can be individuals, estates, and certain trusts.
•Shareholders cannot be non-American residents.
•You must be a domestic company in any state.
•All shareholders must agree to the S Corporation structure formation.
Making the decision on the best business structure for your situation is never easy. This article should provide you with the basics of S Corporation status and help guide your decision of company business formation. Each state's laws differ as well as each company's situation. It's advisable to seek tax and legal counsel to determine the best choice for your individual circumstance.
LIMITED PARTNERSHIP(Purchasing Illinois hunting land for sale)
Limited partnerships are managed by the general partner(s). The limited partners are not responsible for the debts of the partnership; typically the most a limited partner could lose is the limited partner's investment. All partnerships have at least two people involved. In a limited partnership there are one or more general partners and one or more limited partners.
Limited partners have certain rights to the partnership's income and profits, but are not liable for company debts, liabilities, and other financial obligations.
Also Known As: LP, LPs, Limited Liability Partnership, Limited Partnership, Master Limited Partnership, Private Limited Partnership, Public Limited Partnership, Resyndication Limited Partnership, Venture Capital Limited Partnership
(LLC) LIMITED LIABILITY COMPANY (CORPORATION)
•is a type of business ownership combining several features of corporation and partnership structures
•is not a corporation or a partnership
•may be called a limited liability corporation, the correct terminology is limited liability company
•owners are called members not partners or shareholders
•number of members are unlimited and may be individuals, corporations, or other LLC's
Advantages of Limited Liability Company
Limited Liability: Owners of a LLC have the liability protection of a corporation. A LLC exists as a separate entity much like a corporation. Members cannot be held personally liable for debts unless they have signed a personal guarantee.
Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.
No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.
Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Generally, this will be a tax advantage, but circumstances can favor a corporate tax structure.
Disadvantages of Limited Liability Company
Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy.
Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.
Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply.
Setting-up a Limited Liability Company
All 50 states now allow the formation of LLC`s. Forming your own LLC may not be as simple as a sole-proprietorship, however, the process is much less than a corporation. There are two main actions: Illinois hunting land for sale.
1. Articles of Organization: If you plan to set up a limited liability company, you will have to file articles of organization with the Secretary of State and pay the required fees. Articles may be prepared by a lawyer or filed yourself.
2. Operating Agreement: Although it is not required in many states to draft an operating agreement, it is advisable. Much like corporate by-laws or partnership agreements, the operating agreement can help define your company profit sharing, ownership, responsibilities, and ownership changes.
Each state has different rules governing the formation of a limited liability company. For instance, in North Dakota, a foreign LLC is not allowed for banking or farming. Some states will want a publication notice with the local newspaper that a company has been formed. Check with your local state office for further details.
This article should provide you with the basics of limited liability companies and help guide your decision of company business formation. Each state's laws differ as well as each company situation. It is advisable to seek tax and legal counsel to determine the best choice for your individual circumstances.
"BUNDLE OF LEGAL RIGHTS" WITH REAL ESTATE OWNERSHIP
•the right of possession - the property is owned by whomever holds title;
•the right of control - within the laws, the owner controls the use of the property;
•the right of exclusion - others can be excluded from using or entering the property;
•the right of enjoyment - the owner can enjoy the use of the property in any legal manner; and
•the right of disposition - the title holder can sell, rent or transfer ownership or use of the property at will.
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