Forming an LLC

22 Replies

I am in the process of obtaining my first property and after review, I believe that I should form an LLC. I have read reviews of some familiar corporation service companies (Leagal Zoom, The Corporation Co., etc.), some good & some bad. I understand that no company is going to provide 100% customer satisfaction. Any thoughts on who provides the best service at a reasonable price?

Why do you want a LLC?

Joe Gore

I am planning to obtain several properties over time and want provide some personal protection and insulation. Also, I am going into this with another individual and believe that I need a good legal structure which helps keep everything in order.

If you want personal protection get a good insurance policy.

Joe Gore

That's in place both in the areas of the property and personally (property, umbrella, etc). I believe that insurance is important and has it's place. Looking at taxes, liabilities and proper structure, a legal entity is important which is why I am putting out the question regarding experiences that others may have had in this area.

I'm with you. There is no good reason not to have at least one LLC for the separation and protection of your assets. Sadly, I do not know the process for Illinois, but I formed a Virginia LLC online last week for $100 in 5 minutes. Most states have a very easy form to fill out physically or online. You do not need a lawyer to do this unless you don't know your address or SSN, and if you don't know these then you shouldn't be filing anyway.

Your state gov website should have all the info you require.

If you are still worried about technicalities, find a CPA on Google. They'll be happy to walk you through financial need-to-knows.

I am not an attorney, nor do I play one on TV, but I have formed an LLC. You can form your LLC in any state you choose, and some states offer advantages: http://www.myllc.com/which-state-to-form-llc.aspx I live in NY and formed my LLC in Wyoming using http://www.wyomingregisteredagent.com/wyoming-llc-limited-liability-company-formation-details.htm but then I had to have my LLC "authorized" in NY.

Good luck!

Tara

As far as Nevada or Wyoming LLC's, noted asset-protection attorney Clint Coons states that these are worthless UNLESS you use it as a holding company LLC. If you don't do this, you will NOT enjoy the benefits of the LLC-friendly state.

Clint Coons article

The punch line at the end of the article:

"To obtain the protections offered by Nevada or the other strong asset protection states, you can create a LLC in one of these states and have it own your California LLC(s) [or whatever state you are operating in]. Structuring you affairs in this manner, your out of state holding LLC does not fall within California’s jurisdiction and is immune from its enforcement actions.

Also, a benefit to using an attorney is that trial lawyers are more likely to go after you if they see you have a DYI LLC: they assume you may not have done a good job running your LLC as a distinct entity and maintaining good records. Plus they know that DYI LLC agreements are more likely to have holes in them.

An attorney will also ask you many "have you thought about" and "how do you want to handle this" questions.




@Jason Rhine second! Go the state secretaries website and know where you live. Save the $100.

Also, LLCs aren't not the get out of jail cards some people believe them to be. You are still the manager or member of that LLC. At the end of the day you are responsible for your actions, ask any judge. They can help contain certain losses and liabilities, but if you are starting out you probably don't have too much to salivate over anyway.

A rule of thumb might be if you are worried about the price you probably don't need one. That is good for just about anything in your life.

@Tara Piantanida-Kelly Wyoming can use your money, but odds are you have wasted it on doing it in Wyoming the state you own your property in will control the laws you are sued under unless you put a lot of work and knowledge into it. @David Beard has it right.

I went thru legal zoom. I live in Chicago and I must admit the process is simple. It's a little pricey, only because Illinois have one of the highest process fees in the country. It will cost you a total of $800 for Illinois residents. They offer a lot of useful services. It's worth the money.

I was under the mind-set that LLC(s), incorporating, are a good way to legitimize your business, separate your personal life and expenses from your business and protect your personal assets from others. I get the feeling that some of you don't recommend incorporating. Is this correct?

Thanks to all for the ideas. I am of the impression that bypassing the service companies and going directly to the Secretary of State is probably the best route.

Originally posted by @Guy Heath :
I was under the mind-set that LLC(s), incorporating, are a good way to legitimize your business, separate your personal life and expenses from your business and protect your personal assets from others. I get the feeling that some of you don't recommend incorporating. Is this correct?

I would say that YES, putting your investment properties in an LLC is a great idea. If you own stock, the worst that can happen is you lose your money. If you own investment property, there are much worse things that can happen. When bad things happen to a sole proprietor, your personal assets are at risk. An LLC separates you from that risk. Hence the name, Limited Liability Company. There are also tax benefits. I don't see any benefits to not incorporating.

The tricky part is - What will you name your LLC? You need a business name that has not been taken by anybody yet.

Also, check out this article -

http://www.biggerpockets.com/renewsblog/2013/08/17/rental-properties-llc/

Yes Erik, I couldn't have written it better!

I agree with Erik and the other posters that recommended the protection of an LLC. I created an LLC in Louisiana (where I live/conduct business) by going to the State's website - they had all the necessary forms and guidance - and I paid only their filing fees.

Hey Jay,

I know someone locally that can help you with that. If I remember correctly they charge under $1000 for the whole thing. That includes articles of organization and everything else you may need.

HI @Jay Porras

I just formed my first LLC in NV, its very easy and inexpensive and your state probably has something similar. You need to find a resident agent if your out of state and complete the https://www.nvsilverflume.gov/startBusiness web site. I used an attorney to draft an operating agreement so I'm in for only the filing fees and an hour of "attorney" time.

Bill Schrimpf, Real Estate Agent in NV (#11844)
(775) 313-0778

From the perspective of an attorney, you want the protection of an LLC.

However, it comes at a cost. In my experience, you will not be able to obtain as favorable of financing from a bank when the property is titled as an LLC. You might pay more in points, higher down-payment requirements, and a higher interest rate. Ask around.

If you are going to title it in your name, make sure you carry insurance sufficient to protect your personal assets.

Here's a question for those people with LLCs - do you recommend creating a LLC for EACH property for protection or is it just better (or easier) to create one LLC and group all of your properties under?

I have a friend who created a LLC for each property they acquired and suggested this idea to me. Easier is better but at the same time I don't mind going the extra mile to insulate myself from the overhead of liability/potential legal matters.

@Jay Porras i'm not an attorney … not legal advice.

there are 2 bits to an LLC 1) the mechanics of creating the LLC with the state, i.e., paperwork with the secretary of state, etc, which is pretty straight forward if you know what you're doing and 2) the operating agreement.

you mentioned you are partnering with another person and for that reason, i STRONGLY suggest you spend a few extra $ and have an attorney develop a solid operating agreement that clearly spells out how things will work between you and your partner. i would not go with a legal zoom type of company to develop the operating agreement. they are not attorneys nor can they provide legal advice.

a solid operating agreement is important for when things don't go like you envisioned at the start. i've been there, done that, had was glad i had my attorney put together my operating agreement. the operating agreement is basically a contract that, amongst other things, lays out the rules of engagement should there be a disagreement, etc.

cover yourself and ensure you have a solid operating agreement.

Thanks to all for the excellent discussion and points. I am in the process of putting paperwork in place working with an attorney to make sure that everything is in order. For the LLC portion, based on requirements, etc. I logged on to the secretary of state and created the LLC on-line which was easier than one might think.

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