Tom's Blog

Jerry, one of our new School of Wealth Strategy students, asks the following question about buying an aged company for credit purposes:

Q: Hello Tom I was on the Oct Wealth Strategy call, had signed up just the week before!, and now am doing all my homework for the Dec Massive Passive call. I am also currently 4 weeks into the Chris Wise Credit program with 4 more weeks to go. Just wanted to bring you up to speed on where I stand. My question is regarding the purchase of an aged company. My goal is to purchase an aged company sooner than later so that I can access a business line of credit soon. The next step is to use that capital to purchase more growth assets and sources of passive income. I plan on the company ultimately being a real estate investment business but not for holding the actual properties. Therefore, should I purchase an LLC, S-corp or C-corp? I do not plan on employees and I have no kids (only a dog!). I will want to be able to maximize all the tax benefits of the corporation. Hopefully this is sufficient info. Thanks for your time and reply Jerry Durham.

A: There are two issues here. The first is which type of entity is best from a credit standpoint. I will refer you back to Chris for this part of the question. (Alwaystake maximm advantage of your mentors for their expertise.) The second question is a tax question and the answer to all tax questions is, "It depends." Tax planning depends largely on your long-term wealth strategy. And the best answers always come from the most information.

However, there is an entity that will give you the flexibility you need until you have your wealth strategy in place. This is an LLC, or limited liability company. LLC's can be taxed any way you want them to be taxed. Just be sure when you purchase the LLC, that an entity election has not already been made for the company. Also, I would suggest that you also set up a holding company to own the purchased LLC. The reason for this is that purchased companies always come with skeletons. You don't want to purchase assets inside of a company that already has a history, included potential lawsuits.

Instead of making your investments directly from the purchased company, make them from a sister company that you have set up. For more information on entity set up, please see our School of Tax Strategy modules on Entity Fundamentals and Building Your Perfect Foundation at http://www.provisionwealth.com/products.

Warmest regards,

Tom