Business entity for buying and selling raw land

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Business entity for buying and selling raw land

Randee K.
Vista, CA · Member since 2015 · 3 posts · 4 votes

I am planning to start a business to buy and sell raw/vacant land. I would like the freedom to purchase properties in any state, but I am beginning to think that will be complicated by the rules of most business entities. Also, as a California resident, I am going to be subject to very high annual fees if I form an LLC, even if the LLC is formed in another state. So I am trying to figure out what the best entity and liability protection option is for my situation.

My questions for you folks:

- Do I need to worry much about liability with a raw land business? I won't have tenants or construction workers on the land, only an occasional surveyor or inspector. Planning to hold the land for as little time possible (from a few weeks to a few months). If there is little liability risk, it seems like an insurance policy might be safe enough.

- Am I liable for tresspassers on vacant land that I own?

- As a sole proprietorship, would I be free to operate in all states? Or do I still have to register in each state that I do business?

I am willing to jump through the LLC hoops and pay the fees if necessary, but if I can operate safely and legally without all that trouble, that would be nice.

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  • Katie L.
    Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes
    7y

    @Randee K.

    There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants (for you, I suppose, people on the property), your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.

    Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (but other things you may not foresee as being likely). If you're not going to be on the property often, you'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

    Creating an LLC in California would cost you a minimum tax of $800 every year (even if you form in another state, as you say). You would have ongoing filing requirements with the State and would need to keep business records and documentation. If you create an LLC, you will need a business account.

    These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

    *This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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