Legal forms USA – What types of company are there? If you want to set up your first US company, choosing the legal form is one of the first steps in the company formation process. Whether you want to set up a special real estate company or a start-up, we have summarized all types of companies in the USA for you here – with extra tips for real estate investments, of course. But be careful: The legal forms in the USA differ from the legal forms in Germany. In this list of companies you will find explanations, advantages, disadvantages, costs and the process, including checklists and requirements, for each type of company. All legal forms in one list! Your first company? Learn how to set up a company here.
Do you want to buy and rent out your first property? You have inherited a property and now want to work in real estate management, property management and other related areas yourself, or even more, you want to become a real estate investor yourself? Then the big question is, which company is the right one? What is the first step?
Basically, you have many different possibilities and options as to how you can set up your business for the future. To give you an initial overview, we have written this guide to the different types of companies for you. Here you will learn about the different options you have as a founder in the USA. Definitions, start-up tips, advantages, disadvantages and taxes. Everything you need to make a good decision.
An LLC (Limited Liability Company) is a flexible and popular legal form in the USA. It offers its owners the advantage of limited liability, similar to a corporation, but combines the tax advantages of a partnership. Profits and losses are attributed directly to the shareholders, which avoids double taxation. In addition, an LLC offers a simple structure and flexibility in administration, which makes it particularly attractive for small companies.
LLC: My recommendation for the first 10 properties
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
A limited partnership consists of at least one general partner and one limited partner. The general partner bears full liability for the company’s debts, while the limited partner is only liable to the extent of their contribution. This structure is often used in equity investment or real estate projects, as it enables a clear separation between active and passive participation. From a tax perspective, a limited partnership benefits from the fact that profits are only taxed at partner level.
A general partnership is a partnership in which all partners have unlimited liability. This legal form offers flexibility and simple formation without major formalities. Profits and losses are attributed to the partners and are taxed personally by them. However, the partners’ full liability for the company’s debts entails a higher risk, which is why this form may be less suitable for certain business models.
A real estate limited partnership (RELP) is a special form of limited partnership that is used for real estate projects. In this structure, passive investors invest as limited partners, while the general partner takes over the operational business and has unlimited liability. RELPs offer the advantage of tax transparency and are particularly suitable for large real estate investments where the parties involved want clear liability and profit relationships.
A C corporation is an independent legal entity that is separate from its owners. It offers a comprehensive limitation of liability for its shareholders. Profits are taxed at the corporate level and distributions to shareholders are subject to personal income tax, which can lead to double taxation. Nevertheless, this legal form offers advantages such as access to capital markets and the possibility of having an unlimited number of shareholders.
The S Corporation is similar to the C Corporation, but with the difference that profits and losses are passed on directly to the shareholders, thus avoiding double taxation. However, there are restrictions on the number and type of shareholders. This legal form is often chosen by smaller companies that want to benefit from tax transparency but at the same time need the limited liability of a corporation.
A real estate holding company is a type of company that is used specifically for the ownership of real estate. This structure provides legal and tax separation between the owners and the property owners. It is ideal for investors who own and manage several properties without holding them directly in their own name. This allows liability risks to be reduced and tax advantages to be exploited.
A real estate investment trust (REIT) is a special type of company that invests in real estate and is traded on the stock exchange. Investors can acquire shares and thus invest indirectly in real estate without owning real estate directly. REITs are tax-privileged, but must distribute a large part of their profits to shareholders as dividends. They are a popular option for investors looking for a liquid and diversified investment opportunity in the real estate sector.
The combination of several company forms offers entrepreneurs the opportunity to spread risks and maximize tax advantages. For example, an LLC can be used in conjunction with a corporation to separate operational and administrative functions. This is particularly useful in the real estate industry or for more complex business models where different business areas need to be legally and fiscally separated.
Sole Proprietorship, also known as a sole proprietorship, is the simplest legal form in the USA. The owner bears sole responsibility for the business, but also has unlimited liability for its debts. This form is suitable for smaller companies or freelancers who do not require a complex structure. As there is no separation between the company and the owner, taxation is levied directly on the owner’s income.
Direct ownership of real estate in the USA as a private individual offers both opportunities and risks. Owners benefit from the increase in value of the property and the rental income, but must also observe the tax and legal obligations. In addition, personal ownership of real estate can lead to liability risks, which can be minimized by using a suitable legal form such as a real estate holding company or an LLC.
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
