Wholesaler · Sunny Isles Beach, FL · Member since 2016 · 48 posts · 8 votes
Hi.
I have my company, LLC created in Florida. I would like to know if I can use the same company to close deals in another state outside Florida? or if is better have different companies (one for each different state) where I'm going to buy properties and do business?
Right now I'm going to start with Wholesale, but my next stow will be fix and flip or fix and hold, I should use a different company in that specific moment, or I can handle every bring with the same one company?
What is the best tax scenery involved in all this?
I used to have different business before for another type of business, and I think that is much better just have one or a few to run the business.
I'll really appreciate all your professional comments and knowledge about this.
Thanks and have a great afternoon.
Regards.
William
Lender · Raleigh, NC · Member since 2012 · 955 posts · 639 votes
10y
@William Laurent -- I agree with @William Morrison re differentiating between the hold and a wholesale. If you are doing business in another state, you need to "foreign qualify".
What's meant by doing business?
In today’s mobile/virtual world, it can be difficult to know just what constitutes doing business in a state. If you’re uncertain whether your particular business needs to foreign qualify, you should check with your attorney or accountant. They'll ask about the operation, physical presence, frequency of in-person meetings, % of revenue in that state, etc.
Foreign Qualification means submitting a Certificate of Authority app (might be called a Statement and Designation by a Foreign Corporation) with the Sec of State.
Here's why this might be important. If you don't, you could be subject to fines, back taxes, and THE INABILITY to sue in a state where you aren't registered.
Investor · Silver Spring, MD · Member since 2014 · 178 posts · 60 votes
10y
William, wholesale and maybe fix and flip maybe different, but the "hold" has rules associated with where the asset is held. North Carolina, Maryland and all I have looked at require you to file as a foreign entity if the LLC is not in the same state. I found it to be worth registering in those two but not California. California is rough on smaller investor out of state entry, not as bad if your big enough but hard to startup (in my opinion).
Lender · Raleigh, NC · Member since 2012 · 955 posts · 639 votes
10y
@William Laurent -- I agree with @William Morrison re differentiating between the hold and a wholesale. If you are doing business in another state, you need to "foreign qualify".
What's meant by doing business?
In today’s mobile/virtual world, it can be difficult to know just what constitutes doing business in a state. If you’re uncertain whether your particular business needs to foreign qualify, you should check with your attorney or accountant. They'll ask about the operation, physical presence, frequency of in-person meetings, % of revenue in that state, etc.
Foreign Qualification means submitting a Certificate of Authority app (might be called a Statement and Designation by a Foreign Corporation) with the Sec of State.
Here's why this might be important. If you don't, you could be subject to fines, back taxes, and THE INABILITY to sue in a state where you aren't registered.
@William Laurent -- I agree with @William Morrison re differentiating between the hold and a wholesale. If you are doing business in another state, you need to "foreign qualify".
What's meant by doing business?
In today’s mobile/virtual world, it can be difficult to know just what constitutes doing business in a state. If you’re uncertain whether your particular business needs to foreign qualify, you should check with your attorney or accountant. They'll ask about the operation, physical presence, frequency of in-person meetings, % of revenue in that state, etc.
Foreign Qualification means submitting a Certificate of Authority app (might be called a Statement and Designation by a Foreign Corporation) with the Sec of State.
Here's why this might be important. If you don't, you could be subject to fines, back taxes, and THE INABILITY to sue in a state where you aren't registered.
I hope this helps.
Great recap Adam. I noticed you're in North Carolina. It is where I set up my first out of state LLCs. I'm in Maryland. Their government site is pretty informative. They have also been very pleasant and responsive when I've called. The cost is reasonable to setup an LLC there and the foreign entity probably works better for a different type business (vs buy and hold rentals). In California not so much for me. LLCs are costly there, a simple partnership worked better for me there. While researching this whole deal I found case after case that confirmed your last statement about fines, back taxes etc to be true. And the examples were all Nevada, Wyoming etc LLCs doing business in another state with an asset in the other state. Not just the inability to sue but when sued they started out as operating illegally (maybe the wrong term but close).
Real Estate Agent · Baltimore, MD · Member since 2016 · 11 posts · 5 votes
10y
In doing research of my own, I've also learned that it appears that a company - for buy and hold, (an LLC is best) - to establish a separate LLC entity for EACH PROPERTY HELD. The logic behind it is that if ever sued, the maximum the company can be sued for is the individual property value, MINUS the mortgage. If you have multiple properties held by the same LLC, it's my understanding that your company could be sued up to the combined value of ALL properties held, minus their mortgages.
If anyone out there can confirm this, please do - it's pretty important for people getting into renting to know!
In doing research of my own, I've also learned that it appears that a company - for buy and hold, (an LLC is best) - to establish a separate LLC entity for EACH PROPERTY HELD. The logic behind it is that if ever sued, the maximum the company can be sued for is the individual property value, MINUS the mortgage. If you have multiple properties held by the same LLC, it's my understanding that your company could be sued up to the combined value of ALL properties held, minus their mortgages.
If anyone out there can confirm this, please do - it's pretty important for people getting into renting to know!
Sheri there an other thread I've seen today on just this subject, how many or how much. I think the idea is to separate your assets. So it might be two in one and two in another with a dollar limit, say $1mil. Too small and you may have a 1031 exchange issue if you wanted to do that later.
Wholesaler · Sunny Isles Beach, FL · Member since 2016 · 48 posts · 8 votes
10y
Hi @William Morrison and @Adam Schneider, Thanks so much for your answers, it was very helpfully for me. So I know that isn't so easy when you want to open business out of my own state, but now I have everything more clear. NOT USE MY FLORIDA LLC, to make business out of state, I think is better right?
Also what @Sheri Collins said was very important, to avoid sued, but the thing is, that could be good at the beginning but then, when the portfolio start to grow up how many companies I should have? I'm pretty sure that has to be another way to simplify and also protect from any sued.
What do you think guys?
And thanks so much again for your value information and knowledge.
Lender · Raleigh, NC · Member since 2012 · 955 posts · 639 votes
10y
@William Laurent -- you are asking questions that are a mix of business decisions, legal questions, and tax questions. You really need to make your own call. A buy/hold investment is going to have you arriving at different conclusions than virtual wholesaling.
CPA · Valrico, FL · Member since 2014 · 33 posts · 18 votes
10y
William,
Generally speaking you don't need to create a new entity for each state. A Florida entity can do business in any state. However, you typically would need to "register" the FL entity with the Secretary of State in the other state(s) where you plan on doing business. By registering you are basically telling that state that you are going to be doing business there. As others have indicated there are legal reasons you want to (and are required to) register. Having said that there are legal reasons and/or tax reasons that you may WANT to set up separate entities (be they FL entities or some other state) to do different projects.
My advice is to hire a qualified CPA and/or attorney, lay out the facts and your plans and then have them assist you in setting up the correct structure. As helpful as forum members may want to be, everyone's facts and circumstances are different and a little good knowledge, applied incorrectly could cost you.