Best Practices for Creating a LLC

16 Replies

Hello BP Members, 

I am a investor located in Chicago and am looking into buying a multifamily property in North West Indiana (NWI) - Hammond. I plan to buy the property under an LLC and not my personal name via a commercial loan.

In relation to forming the LLC in NWI i understand the following:

1) Given that i am not a resident of Indiana, i will have to identify a registered agent and use the address provided to create the LLC.

2) On discussing with registered agent i understand that the address they provide can only with Secretary of state. They strictly indicated that address cannot be used for any other purpose - including EIN, IRS and bank purposes. 

3) As such for creating an EIN, property tax and bank account purposes - i will need to use my personal/primary residential address in Chicago. 

The question i had was - is this common to have personal address for LLCs for EIN, IRS and bank purposes? Doesn't this defeat the entire purpose of creating an LLC to remain independent and keep personal assets/information away? How are other out of state investors handling this and whether there are best practices related to LLC formation that i should be aware about.

As always - thanks in advance for all help and assistance. 

Regards, 

Tushar Shah, CFA

 

  

Once you get your Operating Agreement from your attorney and your EIN from the IRS go to the "UPS Store" and get an address there, Tushar.  Don't use your home address.

@Tushar Shah I have my attorney set up my LLCs and he is my registered agent. He doesn't charge anything for this either since I give him a ton of business and his office staff easily handles the little bit of mail that comes through. He doesn't use my home address in the LLC paperwork.

@John Warren Thanks John. Based on my experience an attorney charges a lot to create a LLC. This can easily be created in minutes online. That is why I took the registered agent route. But its good to know that no is using their personal address and I need to figure something else out. Thanks once again for the input.

@Doug Pintarch Thanks Doug, I didn't know about UPS. It's something I can look into. Online research indicated they charge close to $50 per month for renting the mail box. Seems little expensive to handle small volume of mail. More important for me was to realize that we should not be using our personal address. Thanks once again for the input.

@Tushar Shah - I always like to ask people why they need an LLC?

The reason being, I thought I needed it before I got started and that was totally not the case. It can be a waste of time and money so just make sure you are prioritizing the right next steps in your real estate journey.

Getting going is far more important than figuring out every legal and tax advantage, just my opinion having been there.

@Tushar Shah for most LLC, you can go to a state website and find the owner name and even home address in many cases. There are ways around this such as using an attorney for registered agent or getting an address from UPS. You are going to pay money to protect yourself, so if you are going to cheap out, you will get what you pay for. Sorry to be blunt, but there is a cost of doing business.

Ultimately LLC is not the best option for anonymity, but an LLC is for liability protection not anonymity. I suggest working with an attorney who will be the registered agent. By having that relationship, you have an attorney relationship for if problems come up in the future. If you buy an LLC online, the attorney representing you had nothing to do with setting up the LLC, which makes their job harder.

Originally posted by @Tushar Shah :

@Doug Pintarch Thanks Doug, I didn't know about UPS. It's something I can look into. Online research indicated they charge close to $50 per month for renting the mail box. Seems little expensive to handle small volume of mail. More important for me was to realize that we should not be using our personal address. Thanks once again for the input.

You are not paying that price for them to handle your mail. You are paying that price to keep your personal address secret from the public records and from people who may want to find you. That is worth it.

 

@Doug Pintarch Thanks for the info provided and directing me to the UPS route. I been doing some digging and found out that USPS also provides a mailbox with a physical street address (similar to the one provided by UPS). However, the cost is $98.0 for entire year for USPC in comparison to $35 per month being charged by UPS. Only downfall is USPC Is little future away from me - but given the low volume of mail expected, i am open to this idea. 

Another question i had was do you open one UPS mailbox for each LLC or you use one mail box for all your LLCs/properties?

Only mail in am expecting is from IRS and my bank and therefore was planning to use one mailbox for multiple LLCs/businesses but wanted to check if there are any drawbacks associated with this.

Originally posted by @Jonathan Klemm :

@Tushar Shah - I always like to ask people why they need an LLC?

The reason being, I thought I needed it before I got started and that was totally not the case.  It can be a waste of time and money so just make sure you are prioritizing the right next steps in your real estate journey.

Getting going is far more important than figuring out every legal and tax advantage, just my opinion having been there.

Agree with your statement about getting going. My initial few smaller investments (single family homes) were bought under my personal name. Now i am moving on to commercial properties (with 5 units and up) and therefore considering taking the LLC route. These buildings are multi levels and have risk of tenant falling etc and therefore would prefer to have this under an LLC purely from liability protection perspective.

 

Originally posted by @Joe Splitrock :

@Tushar Shah for most LLC, you can go to a state website and find the owner name and even home address in many cases. There are ways around this such as using an attorney for registered agent or getting an address from UPS. You are going to pay money to protect yourself, so if you are going to cheap out, you will get what you pay for. Sorry to be blunt, but there is a cost of doing business.

Ultimately LLC is not the best option for anonymity, but an LLC is for liability protection not anonymity. I suggest working with an attorney who will be the registered agent. By having that relationship, you have an attorney relationship for if problems come up in the future. If you buy an LLC online, the attorney representing you had nothing to do with setting up the LLC, which makes their job harder.

Thanks Joe for being blunt. I had posted this question to learn about best practices as i knew what i was currently doing was incorrect. I am planning to take the UPS route as its fairly easy was to create an LLC online in matter of 15 minutes.

Question i had for you was do you use same mailbox address for multiple LLCs or you open one mailbox for each LLC. The latter sounds like a administrative nightmare and i am hoping having one mailbox for multiple LLCs will suffice the requirement.

Thanks once again for the inputs. 

 

 

Originally posted by @Eric M. :
Originally posted by @Tushar Shah:

@Doug Pintarch Thanks Doug, I didn't know about UPS. It's something I can look into. Online research indicated they charge close to $50 per month for renting the mail box. Seems little expensive to handle small volume of mail. More important for me was to realize that we should not be using our personal address. Thanks once again for the input.

You are not paying that price for them to handle your mail. You are paying that price to keep your personal address secret from the public records and from people who may want to find you. That is worth it. 

 

Thanks Erik. I now understand the pros/cons and understand the importance of keeping personal address secret. Do you generally use one mailbox for multiple LLCs or have one mailbox for each LLC?

 

Originally posted by @Tushar Shah :

@Doug Pintarch Thanks for the info provided and directing me to the UPS route. I been doing some digging and found out that USPS also provides a mailbox with a physical street address (similar to the one provided by UPS). However, the cost is $98.0 for entire year for USPC in comparison to $35 per month being charged by UPS. Only downfall is USPC Is little future away from me - but given the low volume of mail expected, i am open to this idea. 

Another question i had was do you open one UPS mailbox for each LLC or you use one mail box for all your LLCs/properties?

Only mail in am expecting is from IRS and my bank and therefore was planning to use one mailbox for multiple LLCs/businesses but wanted to check if there are any drawbacks associated with this.

Our UPS store mailbox has an actual street address, Tushar. We have one LLC only, and if we end up with more I will be getting another box for that one, just like a separate bank account.

Hope this helps!

-Doug

 

LLCs privacy aspect are really separate from the legal liability perspective. Your LLC can still be registered at your personal residence, but can still keep your personal assets safe. They are a very cheap form of insurance!

You want to make sure any potential liability stays insulted to the property "in question" and not spread putting everything else at risk. Meaning, every property should have its own LLC. Very important that you should not commingle personal and business expenses nor cross expenses through various LLCs. Keep everything separate in order to maintain the integrity and legal protections afforded by an LLC. I would also suggest starting a Management Co. LLC to separate a bit further and also provide the convenience of running all financials through one entity as a manager which is okay.

Originally posted by @Tushar Shah :
Originally posted by @Eric M.:
Originally posted by @Tushar Shah:

@Doug Pintarch Thanks Doug, I didn't know about UPS. It's something I can look into. Online research indicated they charge close to $50 per month for renting the mail box. Seems little expensive to handle small volume of mail. More important for me was to realize that we should not be using our personal address. Thanks once again for the input.

You are not paying that price for them to handle your mail. You are paying that price to keep your personal address secret from the public records and from people who may want to find you. That is worth it. 

 

Thanks Erik. I now understand the pros/cons and understand the importance of keeping personal address secret. Do you generally use one mailbox for multiple LLCs or have one mailbox for each

 

One for all. Try to keep it simple. You just tell UPS when you add a name.

 

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