LLC in NJ, PA, DE, or elsewhere?

Question

I’m looking to file an LLC but not sure where to file or the benefits are to one state over another.

I’m located in NJ but my partner is located in PA. Our first project will be in NJ but we may venture into PA at some point. I know Delaware is very business friendly, but I’m not sure of the benefits of one vs another. I saw that South Carolina had a cheap filing fee and never a renewal fee so would that be beneficial to give me protection and be cost effective?

Also, what’s the quickest way to form an LLC?

Any help is greatly appreciated, thanks!

Stanley Bronstein · Answer

I would think the insurance policy would be in the name of the owner of the house. If the owner of the property is the LLC, then the insurance will be in the name of the LLC.

Stanley Bronstein · Answer

@Chris Laino - @Chris K. is pretty much correct. I wouldn't get fancy with choice of location. If you are going to be owning income producing property, the actual ownership entity should generally be registered in the state where the property is located. If you have a lender involved, they're pretty much going to want the ownership entity to be registered in the state where the property is located.

As for your holding company entity (if you use one), lenders will sometimes want that registered in the property state as well (depending on the size of the loan).

Chris K. · Answer

@Chris Laino

For the LLC that will actually own the property, I typically do LLCs in the state that where the property is located. At one point in time, some states had serious advantages when it came to the LLC laws. Nowadays, competitive advantages have more or less flattened out. I think that is especially true for real-estate holding companies.

In the venture captial world and the "big business" world, many of them incorporate in Delaware. But I don't see a strong argument for why an average real-estate holding company should incorporate in Delaware. For example, you are unlikely to take advantage of the Court of Chancery in Delaware. If you are looking to do an IPO or an MA for your startup, being in Delaware could be a good idea due to the fact that majority of folks you will deal with use Delaware as the "standard."

Filing for an LLC is easy. The harder part is for you and your business partner to agree on an operating agreement. That's especially true if you guys are looking to do a 50/50 llc.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Chris K. · Answer

@Chris Laino

Not sure what tax benefits you will get in your situation unless you are flipping and doing an S-Corp. If you want to get taxed as a partnership, then my understanding is that it's somewhat moot from a tax perspective whether you have an LLC. But I'm not really a tax expert.

Asset protection is a complicated topic. simply having LLCs is not that meaningful. Now when you have other partners involved, I generally think LLCs are a smart idea not only because it protects against both "external" and "internal" liability. The biggest weakness of a general partnership is that the general partner is liable for the conduct of the other partners. I still remember a situation where the owners of a successful mid-size business got into major trouble because they --- for whatever reason --- continued to do business as a general partnership. Pretty amazing they lasted that long if you think about it.

Insurance wise, you typically need to buy property related insurance through whatever entity that owns it. So if you are going to own the real estate using an LLC, then the LLC will buy the insurance and protect it's members. For contractors, you will want to them to provide your with their certificates of insurance as well to make sure they are insured as well. But really, you should work with an insurance broker. I personally can't live without them.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Chris Laino · Answer

@Chris K. @Stanley Bronstein thank you for the reply. Aside from the tax benefits, I’m looking at an LLC for the legal benefits to protect my personal assets. Would I have to get insurance through the LLC in case a contractor or someone gets hurt at the property, or would the insurance on the house cover that?

Antoine Martel · Answer

I would use incorp.com and I would make the LLC in Wyoming

LLC in NJ, PA, DE, or elsewhere?

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