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How are the parties involved in the S.corp Liable if sued?

Walnut Creek, CA |

Hello, I am looking to start a Real Estate Investment Co. and was looking to set up an S.corp. There are 5 parties involved in the business. One financier who is getting a mortgage loan, another who is investing cash, a realtor and a secretary/owner, etc (which is me).
We each have a certain percentage we all share from the net profit after the sale. Are we all responsible equally if we get sued by the investors??

Attorney Answers 3

  1. Best answer

    The idea of an S corporation, a C corporation, or an LLC is to limit the liability of the company to the assets of the company. If you are going to hold specific real property assets, you may wish to consider a separate LLC for each, with the corporation being the LLC member. In that instance, the liability for each building is limited to that building and its LLC.

    So long as all of your investors are American citizens or resident aliens and none of your owners are corporations or other business entities you should be able to take advantage of the S corporation.

    If you are going to operate in California, then given the cost of registration there you might as well organize in California. If you are operating in another state you may wish to consider organizing in another state, e.g., Delaware.

  2. I would have some concerns about setting up this business as a corporation. The decision between a corporation and an LLC with this type of enterprise will be critical...and should involve careful discussions with an attorney of your choice and a CPA. Typically, but not always, these types of projects will be an LLC for a variety of, a discussion with an attorney, a CPA and a real estate investment specialist will be important...questions?

    By Grace...
    Shawn Jackson ESQ. (707) 584-4529
    Business Development Attorney EMAIL:

    No communication resulting herein shall create an attorney-client relationship unless a separate retainer agreement is signed by attorney and client. The information provided neither is legal advice nor is it conveyed in the course of an attorney-client relationship, but is intended merely as a general overview with regard to the subject matter covered. You should not act upon this information without seeking professional counsel such as any attorney in this office in a subsequent email communication (agreement) and the formation of an attorney client relationship.

  3. From suits form outsiders, the corporate entity should protect the shareholders. From shareholders suing each other, there is no such protection. One way to minimize risk is to have a corporate attorney who represents the entity not the individual owners. I have seen that most self-formed corporations have no idea how to issue shares (or membership interests in LLCs) and this can provide unforeseen liability in the future. A corporate attorney would probablly also advise a buy-sell agreement and/or a managrement agreement to try to resolve disputes before they arise. One example would be to decide what "net profit" means in advance. Our office acts in this capacity for numerous corporations, and you may contact me via the Avvo profiles.

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here.

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