I'm Lucy, and I'd be happy to answer your questions today.
Members of a partnership file partnership income on a Schedule C attached to their personal tax returns, not on a separate business tax return. LLC owners report their personal earnings from the LLC or corporation on their own tax returns, but the LLC/Corp. has its own EIN and will file a separate tax return. Partners are liable for the debts of the business, members of an LLC or corporation are not. So, a partnership would not meet your stated needs.
Between a Corporation and an LLC, the LLC is less formal. It is typically preferred for smaller or family-owned companies, because there are more flexible management options. The Article of Operating Agreement that you need for an LLC is very similar to the Articles of Incorporation that you'd need to start a corporation, so the fact that you didn't know to do it doesn't necessarily mean you made a mistake or chose the wrong form. You should be able to file that now and proceed with the business.
The way to avoid liability is to keep all business income/expenses separate from your personal income/assets. Rent checks are payable to the LLC, deposited in a business bank account. Expenses are paid by the LLC from the business bank account. The owners cannot take withdrawals for personal purchases, even if they repay the money later. The properties themselves would be owned and insured by the LLC, not by you and your brother. Things like that. The LLC must hold board meetings and keep minutes, with votes for actions taken (like buying a new property). Any local attorney can help you set that up and create the articles of operating agreement for you.
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