Does LLC have to be state specific?

Question

Hi all, I'm a new investor looking for a deal to go in on with an existing business partner (bar business) of 10+years, my first and his second deal.

I will be doing my own research on this but perhaps the forum could help get the ball rolling.  If and when we set up an LLC and we buy an OOS deal, does the entity have to be registered as doing business in the state where the property is located.  I'm in NJ he is in NY, we have a fairly wide net area wise, looking for ideally multi family.  Any other potholes in this road we should be forewarned of?  We will obviously be doing our own research and due dilligence, but insight from the hive mind is appreciated.

Gary Miller · Answer

@Scott Smith

Many thanks Scott.

Thanks for the input.

My partner is someone whom I have worked with in several different ventures over the years, some very successful, some not so much.  As I mentioned he has one property which he has BRRRRd and cash flows nicely.

I did reach out to our lawyer who handles our business affairs, who also had some valuable advice for tax and corporate structure for us.

Gary.

Scott Smith · Answer

Hey Gary,

A side note on setting up deals with partners - I would always start the conversation by getting on the same page. This will come into play and pay off during the setting up of the LLC and the operating agreement - check out this article by @Joshua Dorkin

For real estate investors, I would always form the LLC in the state that has the least filing requirements and least amount of yearly fees. Texas is my favorite in this regard, but you need to know how to use land trusts in order to avoid the foreign filing fees. Here is a website that breaks down the fees for your state: https://www.llcuniversity.com/llc-annual-fees-by-state/. Since this is your first deal, you should really work directly with an experienced attorney and have them write up the operating agreement and LLC. If you DIY you are risking both yourself and your partner.

Now, this answer isn’t a blanket answer for all types of businesses. Depending on what the business is there are other considerations that go into play. As an example: if you live in or interact with CA significantly, that has an impact as well because you want to try to avoid the franchise fee. Just one of MANY examples that can impact this decision, but the general rule is find the cheapest and lowest requirement state LLCs that offer good legal protection for you.