By Jenny Rattray
UK investors often wonder about how to get into the real estate business in the US, a very real estate market. When you start a real estate business, a key decision you’ll need to make is which legal structure to choose. While you can operate your real estate business in the States as a Sole Proprietorship, a Partnership, or even a Corporation, a majority of real estate businesses choose the LLC format.
There are a number of factors that make the LLC so advantageous, starting with the fact that LLCs are fairly easy to create. With that said, there are a few steps involved in establishing a real estate LLC efficiently, strategically, and with regulatory compliance in mind.
What is an LLC?
To begin with, though, what actually is an LLC?
The LLC, or Limited Liability Company, a common business structure in the UK as well, is widely used in the States across countless industries. It remains an especially popular option among real estate investors and entrepreneurs in the USA.
In short, what sets the LLC format apart is that it allows you to actually establish your real estate business as a distinct legal entity. In doing so, you can keep business assets and liabilities separate from your personal ones. This allows you to enjoy some of the same personal liability protections you’d get with a Corporation, but with much greater flexibility and less onerous regulatory burdens.
How to Register a Real Estate LLC
As for the steps required to register an LLC, note that they might be a little different from one state to the next and it’s recommended that you seek the appropriate legal advice when setting up your company structure. What follows is a general overview of what the process usually looks like.
1) Choose the state in which you want to register.
Legally speaking, you’re allowed to register your LLC in any state.
Practically speaking, most businesses benefit from registering in whichever state they are headquartered. Real estate businesses can sometimes be an exception. With real estate companies, you’ll typically want to register in whichever state or states you are buying and selling properties.
2) Select a name for your LLC.
Every LLC is legally required to have a unique name, which just means a name not already in use by another LLC in the same state.
In most states, there will be an online database you can search, ensuring the name you want is still available to you. Also note that, in most states, LLCs must have either LLC or Limited Liability Company somewhere within their name, denoting the business’ legal structure.
3) Choose a Registered Agent.
No matter which state you are in, every LLC is legally required to have a Registered Agent.
A Registered Agent is responsible for receiving legal and tax documents on the business’ behalf. The Agent may be an individual, or it may be an organization. In some states you are allowed to serve as your own Agent, but this is the exception, not the rule.
Registered Agents must have physical mailing addresses in the state where the LLC is registered. A P.O. Box will not suffice.
Third-party Registered Agent services exist, and usually charge between $75 and $200 annually for their services.
4) Complete your Articles of Organization.
The Articles of Organization (this is similar to UK requirements for Articles of Association) refers to the legal document you file with your Secretary of State, officially establishing your LLC.
The information required may vary from state to state, but typically involve things like:
- The name and contact information for all LLC members.
- The name and contact information for your Registered Agent.
- The basic scope and purpose of your business.
- Information about where your business is located.
5) Pay the filing fee.
When you file with the state, you will also be required to pay the LLC registration fee.
The amount can vary depending on which state you’re in. For instance, If you live in Texas and are wondering how much it will cost to set up an LLC in Texas, you can expect to pay anywhere from $20 to $300 to formally register your LLC.
6) Create an Operating Agreement.
While not legally mandatory, an Operating Agreement can certainly be useful. Basically, this document functions as a kind of charter for your company, and it can help you minimize legal disputes with your partners down the road.
The kinds of information you might include:
- The allocation of managerial duties between you and your partners.
- The allocation of profits between you and your partners.
- The process for bringing on new partners.
- The process for handling the departure of a partner.
7) Claim an Employer Identification Number.
Your EIN will be necessary before you can file taxes or process your first payroll (assuming you’re bringing on employees). You can apply for one from the IRS, and if you live in the United States then it should be free of charge.
8) Set up a bank account.
Finally, make sure you have a business bank account for your real estate company.
To maintain your LLC’s personal liability protections, be sure your bank account is not connected to any personal checking or savings account.
Establish Your Real Estate LLC
The LLC format can benefit your real estate business in more ways than one, including personal liability protections, pass-through taxation, administrative flexibility, and beyond.
To reap these benefits, make sure you follow all the right steps to establish your LLC for lasting success and of course seek professional legal advice on finalising your LLC from your own legal representatives.
