When you own real estate properties, you are well aware that you are prone to issues of management, liability, and risk. Something can face your investments out of blues, and you will be solely responsible for any loss or long court battles that may prove expensive and time-consuming. However, you can eliminate and shield yourself and your properties by considering to form a limited liability company where you will transfer your properties. One may ask, what is a limited liability company?
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What is a Limited Liability Company?
A limited liability company, or LLC, is a legal entity that can transact on its behalf and be responsible for its debts and liabilities. The primary purpose of forming a limited liability company for your real estate investment is to ensure that you shield yourself against the risks that are likely to face you the same way a corporation protects its shareholders. Holding real estate properties in a limited liability company is becoming a common practice in the industry today. You can also a number of good listings in Toronto if you’re interested in investing there.
Benefits of Turning Your Real Estate Investments into an LLC
Liability Protection – The primary business of turning your real estate investments into an LLC is to gain liability protection. In the course of business, there may arise a scenario where you real estate company will be sued for injuries, damages caused, and sometimes debts. In such a situation, your personal properties will not be taken to settle the obligations of the company. However, you should ensure that the LLC operates as a business to remove yourself from the equation in totality. The real estate LLC will be responsible for its debts and liabilities.
Easy and Inexpensive – Forming an LLC for your real estate properties is a straightforward process that does not require much money as compared to the process involved in the formation of a corporation. You will just create articles of association that highlight the internal operations of the company. However, creating the articles of association can prove to be a little bit technical. In such a case, you can seek the services of an attorney or use self-help or professional websites for a streamlined process.
Tax Benefits – One of the standout benefits of forming a limited liability company is that there is no double taxation. All the taxes are passed to the owners of the company, unlike in a corporation where the firm is taxed, and its shareholders are taxed upon receiving either profits or dividends or even the proceeds from the sale of their shares. By turning your real estate investment into an LLC, you will be saving a tremendous amount of money every taxable duration.
What is the Process of Turning Your Real Estate Investments into an LLC?
- Choose a Business Name – You will be required to choose a business name that is not used by other organization. Your name should have a comma and then initials LLC.
- Create and File the Articles of Association – After choosing a name and determining the physical addresses of the business. You will be required to create and submit the articles of association. You can file this through the mail or in person to the secretary of state.
- Create an Operational Agreement – This is a document that shows how the internal affairs of the LLC are undertaken including appointing directors and sharing of both profits and losses. The document is used in settling internal disputes, in case of any, in the court of law.
- Obtain the License and Business Permits – Typically, your LLC is assumed to have been formed when the secretary of state has accepted the articles of association. However, you need to comply with local authorities by applying for business permits and other necessary licenses. You should also ensure that you get a tax identification number and a bank account for your LLC.
Do You Need Help?
Sometimes it might become too much for you to follow the due process and turn your real estate investments into an LLC. You might consider hiring the services of a real estate attorney who will guide you through this process. A real estate asset protection expert may also come in handy as he/she understands the legal process and may well be versed with your state laws than you. A real estate investment lawyer or an asset protection expert will be instrumental while transferring your real estate to the newly formed LLC.
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