Where do I start with creating an LLC?

Question

Hello,

I am closing on a home in Panama City Beach, Fl. I have 2 partners that are putting in money toward all the expenses involved in purchase and startup of this property as a short-term rental. All 3 of us live outside of FL. We plan to split the expenses and profits according to the percentage that we contributed in purchasing the property and we plan to share the burden of property management. We are looking into starting an LLC with an operating agreement that lays out the rules for distributing expenses/profit sharing etc.

I am looking for advise on where to start with generating this LLC/operating agreement? What state to create it in? Is it worth paying a service to be the registered agent or should we designate one of the partners and use their address for the LLC?

We are looking into "Legalzoom" as a starting place.

Thank you!

Mike Downey · Answer

Interesting I have not heard of this route. I’m going to look into this. Thank you for the input.

Account Closed · Answer

This my personal perspective, others will do things differently. I wouldn't do an LLC with people I'm not related to. DO You Need An LLC - It Gives Me Protection, Right? My Attorney / CPA Says That. . .

https://www.biggerpockets.com/forums/311/topics/1098136-do-y...All my REIs are in an LLC! Why am I being personally sued?

https://www.biggerpockets.com/forums/926/topics/1097903-all-...What I would do, are Joint Venture Agreements  (which don't cost any money by the way, after the first one is drawn up. You can reuse them by changing a couple of lines to fit the new property (address, amount, duration, etc.) and each of you can have your own LLC if you think you want/need that, as a signatory to the Agreement or you can use your personal name. I wouldn't use an online website to creat an LLC. An attorney is worth the money here.

One of the most important parts is your exit strategy. Who gets to decide to sell and under what circumstances and how proceeds are to be divided.

Doug Spence · Answer

I've created my last two entities using a Wyoming LLC. It was quick and easy and fairly cheap. My understanding is that Wyoming will not give out personal information about the owners of the entities, so you have a solid level of anonymity.

For your specific deal, you could set up individual entities, then do a JV agreement between the entities. Make sure you have a tight operating agreement though that spells everything out! Its probably worth hiring an attorney to do that, and its not very expensive.

Good luck and keep us updated!

David M. · Answer

@Mike Downey

Many people use LLC's as part of a strategy for anonymity...  So, if you are out of state you need to hire a service or use your attorney.  The anonymity doesn't actually "stop" anything, but just provides an extra layer because it makes you harder to find.

Since you are investing with non-spousal partners, try to find a good attorney to draft your operating agreement.  More importantly, learn how to operate a LLC so as not to pierce its corporate veil.  That's the most important part.  Remember, this is a legal issue, not an accounting (although much of the issues comes with how you manage the funds) or lending issue.  A good accountant, however, will help you with this, but its really a legal matter.

But, you will need the accountant since they will need to file the 1065 partnership return first, then you guys can file your personal returns.

Be happy to chat.  Good luck.

Mike Downey · Answer

What are you considering a “do it yourself llc” ? Is that the legal zoom? Are you recommending an actual attorney? is the purpose to conceal the owners or to provide limited liability in case someone sues over something related to the rental? I’m looking for a legal agreement that keeps things as clean as possible between partners and something that prevents my personal assets from being on the line if sued in relation to the rental property. So far LLC appears to be the best of these two options.

Michael Smythe · Answer

BE CAREFUL!

Have seen many rookie mistakes in DIY LLC setups.

1) Don't make yourself the registered agent. Otherwise, defeats purpose of making it difficult to find owners.

2) Operating Agreement must be bullet-proof

3) Appear OA will also be a partnership agreement. Doubt you can think of every reasonable scenario that should be covered.

Basit Siddiqi · Answer

I personally don't think state of formation of the LLC's matter for the small investor.I would bring your concerns to an attorney and have him draft up an operating agreement based on your concerns1) When is the LLC Exit2) What happens if a partner dies3) Who makes the decisions4) When will distributions be madeEtc