There are a number of different entity formations available for real estate investment purposes, each carrying their own set of rules and regulations. For example, corporations and associations are required to have annual meetings of the shareholders/members and board of directors, while LLC’s are not required to have an annual meeting. If these regulations are not approached properly, you may risk losing the validity of your business.
5 Things You Need to Know About Creating an Entity to Own, Control or Manage Real Estate:
- Determining which entity to create is one of the first decisions an investor must make. The facts of each transaction will determine the best entity.
- Corporations, limited liability companies, and limited partnerships can all provide liability protection for investors. A general partnership will not.
- Series limited liability companies may be a good choice for a small investor with multiple properties. A series LLC allows for the creation of an LLC with multiple series. Each series can own a separate property providing additional liability protection.
- Limited liability companies are often a good choice for real estate investors. Unlike corporations, LLCs do not have to have annual meetings to elect new officers and boards of directors. They can be easier to maintain, provide the same liability protection to owners as a corporation, and offer flexibility regarding taxes.
- Filing a certificate of formation with the Secretary of State is only the initial step in creating an entity. Bylaws, or a company agreement for an LLC, or partnership agreement for a limited partnership, must also be prepared and the entity must be formally organized at an initial meeting. Each entity must have a federal tax identification number and a bank account.
Failure to properly set up the entity or to respect it as a separate legal entity can cause the loss of liability protection. From filing the necessary paperwork with state and federal departments, managing risks, drafting agreements, the attorneys at Hancock McGill & Bleau will guide you through the entity creation process with expert counsel to ensure protection.