Why are we building a corporation? Within the current business climate, it seems the corporation is taken hold of the collectives resources and attention. Not to get into too much of the gritty details, but it seems that more and more the individual is finding less and less opportunity to grow a business. All the while banks gate keep with raising interest rates and funding becomes hidden behind more red tape.
We have adopted the idea, if the game is rigged to favor one style; then play the game in style to win. Seems we only hear more and more about the corporate dominance in this economic environment. By playing the business game using the appropriate entities, we can collectively share the upsides they enjoy.
Corporate credit is rarely considered, but this is a major component to growth. Corporate ‘credit’ is unlike a personal ‘credit score’, this is a different systems all together. However, it works much like building personal credit. Bills must be paid on time, lines of credit opened and maintained, all done with timing. A huge advantage this business plan includes acquiring capital in real estate, something that is expected to only slowly grow in value, and offer continued passive income to the corporations bottom line. Owning real estate adds to the total evaluation, as well as producing revenue in the business. As this credit grows over time, and the company saves, the business will grow towards new opportunities to acquire more cash flow properties.
This Legal structure also keeps things fare. From buy in amounts that define the percentage of shares given, at a price set equal for all 1st round investors. Done straight forward, kept transparent and private with nothing too complicated and equal for all.
All this will be done to keep the capital where it belongs, under the control and ownership of the investors and shareholders. Shareholders don’t need to worry about a solo investor making decisions affecting sudden sale of the property, or any one party deciding to take the project in a new direction, diverting the longterm goals of the group. All decisions will happen in a typical corporate structure, using the generally accepted accounting principles(GAAP), and elected board members to execute accordingly. Along with clear by-laws that are set for all investors to understand before purchasing shares.
By issuing stock, our private investors can sit with confidence and proof of ownership. The shareholders own the company; and this company owns the land. Hui lands, or partnerships on land titles are tough. Without the use of a corporation, if multiple owners are listed on the title; any one of them can decid to sell, and the others will need to cash them out, or be forced into selling the property along with them. Our goal is to issue stock, and keep the land title under the one company name. For the corporation to sell it, we will need the approval of the CEO, along with board of directors, and shareholders. In this model, if one shareholder decides to sell, many options unfold. The Corporation could elect to do stock buy backs, other share holders could purchase the stock personally, or this stock could be sold to a new investor; even a combination could be used to exchange shareholder’s positions in the company at any one time. This brings confidence to all shareholders, that the company’s evaluation will include the purchased land, and that they can liquidate when they see fit, without forcing the others to sell the capital.
Most importantly, this system allows us to form a syndicate. One that owes nothing to banks for the assets. Often to own land it involves lending and only paying a small percentage of the total value. This model still values your equity in the ownership, and a proportional amount of the profits will be enjoyed. However this does include other owners be involved, rather than paying off a bank to hopefully one day be the solo owner. As a syndicate the company will eliminate possible foreclosures, while receiving ownership at a fraction the total costs of the real estate. Best of all, dividends will be made much sooner than most new companies.
Another hidden benefit is the banks evaluations given to private corporations. Generally a private corp is evaluated at six times the earnings added to the value of capital it controls. This is considered to be nine times for publicly traded companies, and three times for LLC’s and other smaller businesses. One investment strategy could be to wait until the larger assets are producing dividends and approach a bank for cash loans against shares. With a six time multiplier on the capital obtained inside the company, a share holder should have no trouble borrowing the same amounts initially invested. Borrowing against their own shares in the company free’s up cash for other uses. On the plus side, any income from dividends and earnings can be used to offset the interest on these cash loans. Consult your own CPA, but generally loans are considered to be tax free.
Honestly, we have only scratched the surface to the corporate advantage in this article. Simply there are too many things to add into this one blog post. At the end of the day, the current systems are set up to accommodate corporations. Best we go with the flow and the architecture of our systems, this allows for success and continued growth.
Mahalo for reading our blog, I hope you enjoyed this and found something of value here.
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