How fast can you setup an LLC?
Mansfield, TX · Member since 2013 · 207 posts · 26 votes
I have been wholesaling up until now using my name on the purchase and sale contracts. But I have been closing them regularly enough that I think its time to consider setting up an LLC.
Typically how long does it take to do this? Thanks
Sure that is the speedy way to go, but do you really think that's the most appropriate for someone who is not a practicing lawyer and/or CPA?
Always seek professional advice - every situation is different, best to sit down in front of your lawyer and accountant. Besides, as you get further along in investing you will need these professionals.
Give it more like two weeks to be realistic.
5 minutes if you do it yourself on irs.gov then another 5 minutes to register with the state
I was unaware you could even set one up yourself. I was going to have a lawyer set it up.
Sure that is the speedy way to go, but do you really think that's the most appropriate for someone who is not a practicing lawyer and/or CPA?
Always seek professional advice - every situation is different, best to sit down in front of your lawyer and accountant. Besides, as you get further along in investing you will need these professionals.
Give it more like two weeks to be realistic.
Just my 2cents. I'm no expert, but I have created businesses the easy and the hard way.
My first was set up by a lawyer who decided I should be an S-corp and taxed as such while basically doing subcontractor work by myself. I was excited when I got my book of shares and rubber stamp. I was young, that was a big mistake which I discovered come tax season.
The 2nd time around I spent more, had a CPA and attorney work on it. It cost a lot more, but it was set up correctly. It took him a couple days and cost me a couple thousand dollars. He strongly advised us against a 50/50 partnership, which we ignored. Turns out, the money spent was worth it just for the "partnerships ruin friendships advice," but not for the work he actually did.
Since then I have registered a few and always do it myself. It's probably a good idea to speak to an attorney--especially if you have not previously--but is it cost effective to pay for a few clicks of a button? Often times you can get free advice and free internet access to set it up. I would never recommend guessing on any of this. Do not set it up if you do not know what you are trying to accomplish or the differences in reporting and taxation. There are few options to choose from if you know what you are looking for and how you want to be taxed. Registering with the state costs $120 in Wisconsin, but is also very straight forward.
All that being said, my prior line of work is not at all related to real estate. I have not closed any deals.
@Steve FothAll that being said, my prior line of work is not at all
related to real estate. I have not closed any deals "
@Steve Foth -> stay positive and it will happen before you know it
In my state of Maryland I can establish an entity in about an hour. 45 minute drive to Baltimore, 15 minutes inside Department of Assessment and Taxation. $150.00 Fee and its done..
@Kristin Whitaker it depends on what you're trying to do. If you're trying to set up entities and structure your entities and assets to give you asset protection, tax minimization or both, you are absolutely right that it will take a significant amount of work by your attorney or CPA or both.
If you're trying to develop an operating agreement between two friendly partners, it will take a bunch of conversations to get that hashed out.
If you're creating a private placement it will take weeks of work and tens of thousands of dollars.
If you're trying to create an LLC to use to make offers for wholesaling, it will take you all of 5-10 minutes on the secretary of state's web site (at least here in CO) and on the IRA web site to have a legitimate LLC with a valid EIN. The only fee you will pay is to the secretary of state. Involving a lawyer or CPA in that would be a complete waste of time and money. Even if you work with an attorney to create an operating agreement, paying the attorney to fill out the forms for the IRA and Secretary of State is a waste of money.
Jon, do you not need any asset protection or things to reduce taxes as a wholesaler? I at least wanted to do it for tax benefits (I made a pretty penny this year on wholesales alone and want to keep as much of that earned income as possible), there really isn't any "asset protection" when wholesaling.
Thanks for your advice.
Jon, do you not need any asset protection or things to reduce taxes as a wholesaler? I at least wanted to do it for tax benefits (I made a pretty penny this year on wholesales alone and want to keep as much of that earned income as possible), there really isn't any "asset protection" when wholesaling.
Thanks for your advice.
You should stop and read alot about LLCs before asking this question, tax benefits are the last reason you need an LLC. You need to state whether you are SP or a have partner before this question can even be answered accurately. Once you study them you will see they provide asset protection regardless of if you whole sale, flip, renovate if managed properly and understood.
You should stop and read alot about LLCs before asking this question, tax benefits are the last reason you need an LLC. You need to state whether you are SP or a have partner before this question can even be answered accurately. Once you study them you will see they provide asset protection regardless of if you whole sale, flip, renovate if managed properly and understood.
The entity would just myself and my wife. And you are 100% correct I have much more reading to do, I wasn't trying to insinuate I was about to set up a LLC right this moment. In the near future, I was just looking for general guidance here.
Thanks for the insight @Jon Holdman, much needed in this thread! My point was mainly that it's not a DIY deal, or shouldn't be.
There are two issues to separate here:
1. Are you looking to determine the right entity (or set of entities) to maximize your asset protection and minimize your tax burden; or
2. Are you looking to set up an LLC after you've already determined it is the right entity?
If it's #1, talk to an accountant and a tax professional.
Once you know that you want to set up an LLC and you know how you want it taxed (by doing #1), just as @Jon Holdman said, you can set up the LLC yourself quickly and easily in most states. Then you can go onto the IRS website and make your tax election if you don't want to be taxed as a partnership.
You'll want a decent Operating Agreement (I'm don't believe you need a custom one if it's just your wife and you wholesaling and you don't have a lot of personal assets) -- you can either ask your attorney if he has a template or find another successful investor who might be willing to share his. You can even go online and find something that is legal in your state and modify it as you see fit.
Just my $.02...
@bill Just my 2 cents as well, but talk first to an accountant, to see what type of entity you want, Subchapter S and LLC have slightly different tax structures but both are pass through entities to avoid double tax issues and reduce personal liability, You can set up an LLC or subchapter S in minutes, but if you don't know how to keep the corporate formalities you might as well throw your money for it in the garbage. An attorney can explain how you need to run them. For operating agreements and books there are several very good companies that make them with stock minutes, operating agreements, shares, stamps, etc. They are under $100 for the whole works. A decent attorney should be able to explain things in under an hour. Unless you are doing something unique being charged thousands is a rip off. I charge 100$ to form one, and another 150$ to get a book and explain how to use it and keep minutes and bank accounts, etc. I only do them for residents of Wyoming. No offense but not all the advice you got here has been good. Spend a few hundred and talk to a lawyer in your state. If they want more than $500 plus cost of filing move on to the next lawyer, just like houses prices vary by neighborhood. Keep in mind free advice can be helpful but sometimes it is worth exactly what you pay for it.
I am happy to explain to you and guide you for tax purposes as to what makes the most sense; however, a lot is involved in the process.
@Bill Mitchell , You will probably realize after finding out that your entire share of profit from the partnership is subject to Self-Employment Tax (15.3% on 92.35% of your share of income).
I answer at least 3-5 phone calls a week from BP members who want me to explain to them taxation of entity structures.
You should stop and read alot about LLCs before asking this question, tax benefits are the last reason you need an LLC. You need to state whether you are SP or a have partner before this question can even be answered accurately. Once you study them you will see they provide asset protection regardless of if you whole sale, flip, renovate if managed properly and understood.
The entity would just myself and my wife. And you are 100% correct I have much more reading to do, I wasn't trying to insinuate I was about to set up a LLC right this moment. In the near future, I was just looking for general guidance here.
There is a recent blog by Ali on LLCs that got a lot of responses, how they relate to contracts, insurance, etc, you might want check out. I did a ton of research before I made a decision to the point I at least knew what questions to ask. If you go to your states dept of revenue, mine list some great resources to get help like fed Small Business Admin (SBA) , and your state may have one. There is good legal advice out there for free. I got into a lot of good discussions on BP, there are professionals out here that know what they are talking about, just as many that don’t, and ones with experience. Some, not all, things vary by state. There was a TX attorney that chimed in on Alis thread about how he set up series LLC, how TX considers them separate entities. My state also has approved them and treats them the same way, so I went and read the statue on my states legislative website, easy to set up, but they are hard to insure here, which I feel strongly is part of setting up an LLC, to fully understand and insure it with a Commercial Liability Policy. The other big one to find out is if you state allows foreclosure on a member’s interest, not all do, and check out some case laws in your state to consider too. LLCs are a relatively new entity, as related to RE, contracts, probate, can get quite complex. Here is a good article, http://www.johntreed.com/entity.html. Attorney’s, courts, are still interpreting statues by case law, you can look at some of these on the internet.
Some states like Delaware, Wyoming, Nevada, are corporate tax haven with a long history of case laws that people flock to as foreign entities. Some states still require you to register in the state you conduct business in and maintain a residence or registered agent.
After a year in operation with a high exposure level to personal injury I am still learning. Recently I discovered that the wording on my contract did not allow collect up to 40% attorney fees, also that I need to sign my contracts with my corporate title. Knowing how to structure your contracts would be an area to seek an attorney that has experience in court with your business model.
I set mine up on my own, that part is easy, and there is nothing to challenge there in court other than not staying active. When I filed I get my Articles of Organization, if I am SP with no employees I don’t have to register with the dept of rev for taxes it happens when I file. If I am a general partnership like you I do because my states wants to know the type of corporate business I will be conducting, if I will have employee withholdings, sales tax, liquor, tobacco, etc . So it is a little more involved, this can take up to several weeks and you cannot conduct business until you are a registered business with a certificate of registration in hand. That is why I asked if you were SP.
A general partnership has better legal protection because more members have an interest, you can sell interest, S or C has public stock/shares an LLC does not. I like LLCs since I am able to structure them as I wish, where an S or C has stricter structure legally. I also like the tax flexibility of the sub chapters, SP, S, or C I can elect. I am in the process of writing my own Operating Agreement since we are a family LLC too, so I do not have a stranger as a partner, if I did I go to an attorney. The Operating agreement here does not get filled with my Secretary of State and stays in my file.
Sorry about the book hope it helps, I been revisiting my LLC with respect to expanding divisionally and with employees , a possible series LLC, my contracts, probate, retirement, etc, they do require attention and continuous maintenance, can get complex. I may be approaching a point soon where I may be over my head needing an attorney.
Good luck!
Unless you take extra steps, an LLC has no effect at all on taxes. All the income and expenses from the LLC flow onto your personal tax returns.
It may be possible to avoid some of the self employment tax (both halves of social security and medicare) you will pay on wholesaling income by using an S-corp. Then you distribute some of the income to you as dividends (that may not be the correct word, sorry) and only a portion of it as salary. The salary portion is subject to SET, the dividends are not.
One key use of LLC's by wholesalers is to have an LLC buy the property and then turn around and sell the LLC, indirectly selling the property. In that case, just the LLC is really all you need. Creating one yourself should be adequate.
One key use of LLC's by wholesalers is to have an LLC buy the property and then turn around and sell the LLC, indirectly selling the property. In that case, just the LLC is really all you need. Creating one yourself should be adequate.
This is done for REO properties mainly correct? You buy it in the name of an LLC then sell it to avoid the new title seasoning issues correct?
Thanks again Jon, I guess I need to look into an S-Corp then, because tax benefits is the only reason I was considering an LLC.
Yes Terry, I'd say you are and need to see a good attorney. :)
I'd say follow Jerry's advice as well.
When Mo. adopted the LLC legislation back when, I filed an LLC within the hour of its passing, had to be the first or at least one of the first filed, the SS didn't have forms and I drafted everything in corporate form. I also was lucky to consult with an attorney in KC who assisted in drafting the LLC law. It took about a week to investigate the matter and devise the needs to be addressed and waited for the Bill to be adopted. The SS here had to call the state to see if the Bill had passed and if the docs were in good form, they were.
Now, it took less than ten minutes to file my last LLC on line and pay the fee. I already knew what I wanted. If you don't know the tax treatment you want you first need to see your accountant, from there you can register, that's the easy part.
I suggest you do see a good RE attorney for the Operating Agreement as with such experience they may point out the possibilities that you may be involved with in the future and addressing such possibilities in the beginning. You can always modify the OA, but it will cost you, might as well do it right the first time.
You can get a stamp and a book, usually through a local book store or forms store, or from your attorney. Failing to properly maintain your LLC and conduct business in a business like manner can cost you big time.
As Jerry mentioned, an LLC may not be the right entity for you, you don't know what you don't know, so a few minutes with an attorney is a good thing, time with a CPA or business accountant is as well. If you have significant assets and have a trust or estate plan, I suggest you bring those players in as well to address issues that can affect other aspects of your legal and financial life.
There isn't much tax savings as opposed to dealing as an individual other than an entity will make expenses easier to recognize as a business expense rather than being seen as consumed for personal use. You move from an investing aspect to a business aspect, you can write off the mop and bucket as a business expense. There is a tax "savings" when expenses can be paid by non-taxed dollars. You need to weigh this with the self employment tax aspects that Steve pointed out.
Another addition expense will be insurance, commercial policies can be more expensive than individual mom and pop policies.
Consider too ongoing fees to maintain the business entity.
Another aspect is that since your business entity is a corporate person, if it needs legal representation, you may not be able to provide the services unless you are an attorney. Some matters in court can be pretty basic stuff, like an eviction or showing up as a creditor in bankruptcy issues, you may need an attorney for these proceedings.
I've also found many changes in our state corporations law, so you really need to begin there, I've set up a bunch of LLCs and I review the laws each time before I do anything. Being aware of the laws will save you time with your attorney and your accountant.
Looking at the state laws you'll see issues like the removal of members or partners and how such issues default to state law, if that is not what you want (and to do so it may require a law suit to accomplish) you can address the removal of officers, directors, members or their rights through the OA so long as it doesn't contradict law. Make notes of such issues and address them with your attorney in drafting the OA.
I think for the cost involved, getting a blank form OA isn't really a value, I suspect much of it defaults to state law and won't allow the flexibility that can be devised that later on can save you thousands. There is a balance too, it's an art, the more issues you address in detail the more you could be painting yourself into a corner losing flexibility, so again, it's better to see an attorney.
Asking how long it takes to set up a company is like asking how fast can you drive or how far can you swim. depends on the variables, your knowledge, experience, the complexity of your operations and other issues. With a "go by" I can set one up in a couple hours, without it, a couple days, if there are multiple partners, estate issues, buy sell agreements, options, rights of recovery and set off of assets, collateral assignments and such, well, who knows, it could take a month or several months to iron out. I've had OAs that were about 12 pages and some over a hundred, it depends.
But, I really suggest folks consider the future, anticipate what you might do and not just assume you'll only do one thing. Makes notes of plans and concerns and go see an attorney. Good luck. :)
When I first set mine up and my contract it had little assets in it so right or wrong I felt comfortable DIY, that and since I found the subject matter very interesting I disillusion ally convinced myself I could handle this lol, that coupled with I just don't trust lawyers and some don't know what they are talking about either.
Find a "good' one is going to be a challenge, there are so many areas of law, the entity, contracts, bankruptcy, real estate, construction and labor if you rehab, probate, etc...but I will take your advice and not try and write my own OA.
As far as I know, no lawyer will guarantee your operating agreement, contracts, etc are legally sound, and as you pointed out laws change, so seems there is a need to continually hire an attorney for an update. But I would agree it should be better than DIY or one of the internet cookie cutter methods. Only thing I know can be done to an incompetent attorney is file a complaint with the states bar association, if it is not too late and you have loss your shirt in court.
BTW: Our state embeds updates to federal law in our state statues. The statues on our legislative website are not maintained and there is a disclaimer to that affect.
First tip, the best attorney is not on TV or the internet drumming up business.
Second, it may take time and effort with several conversations to find the right one for you and your business.
Even so, in reality, you'll get a better guarantee with a used car than from any attorney. You do get what you pay for, the best guarantee is based on paid advice, if you're paying a bit more, it may be well worth it. :)
@Bill Mitchell , You will probably realize after finding out that your entire share of profit from the partnership is subject to Self-Employment Tax (15.3% on 92.35% of your share of income).
I answer at least 3-5 phone calls a week from BP members who want me to explain to them taxation of entity structures.
@Steven Hamilton II our resident tax expert. What do you know about the tax benes to registering in a state like Delaware? Word is it's a 'tax haven'...would that be more for corporate tax avoidance like for C's?
@Steven Hamilton II our resident tax expert. What do you know about the tax benes to registering in a state like Delaware? Word is it's a 'tax haven'...would that be more for corporate tax avoidance like for C's?
There is no benefit. You WILL pay taxes in the state in which the income is earned. The LARGE corporations benefit, by forcing greater amounts of their expenses in the states with high taxes.
Do a quick search here and you will find a WEALTH of information including many of my posts on the subject.
There is no benefit. You WILL pay taxes in the state in which the income is earned. The LARGE corporations benefit, by forcing greater amounts of their expenses in the states with high taxes.
Do a quick search here and you will find a WEALTH of information including many of my posts on the subject.
There is some asset protection benefit as well for larger corporations, as Delaware is a very pro-business state...
There is some asset protection benefit as well for larger corporations, as Delaware is a very pro-business state...
Yeah I was just reading about that, now Nevada is trying to out do them, and Wyoming. Man they sound way better than my state, no state income or self employment tax and you can shift profit and losses in your OP for tax bene's. In looking at my states registration form, I see a "corporate income tax" "all" have to pay if they make income here, 4% of taxable income and a surtax of 3% taxable income above above $50 gees.
No juries, hard for judgements to get in and manage distributions to pay one, sounds like a place for cash investors low risk.
I'm calling my state Monday look into this more.