A limited liability company ("LLC" is an entity created by state law similar to a corporation. Like the corporation, the LLC has limited liability for its members (LLC owners are called members whereas owners of corporations are shareholders). A domestically formed LLC (i.e., one formed in one of the 50 states as opposed to formed overseas) can be taxed three different ways: (1) if 100% of the entity is owned by one person or entity and no election is made with the IRS to tax the entity as a C or S corporation (yes, an LLC can be taxed as a S corporation ... most people are not aware of that), federal tax law disregards the entity and considers all of the assets and liabilities owned by the person or entity owning 100% of the LLC; (2) the LLC can be taxed as a partnership if there are at least 2 members and no election is made with the IRS to tax the entity as a corporation; or (3) regardless of the number of persons or entities that are members of the LLC, the LLC can be taxed as a corporation for federal tax law purposes only if an election is made with the IRS.
The fact that the LLC may be disregarded for federal tax law purposes does not mean that it is disregarded for state law purposes. Therefore you still get the limited liability protection. I personally like LLCs for real estate because of the flexibility and less formalities required than a corporation. If you don't follow the formalities required under the state statute and a creditor is successful in "piercing the veil" (meaning getting the court to disregard the limited liability status of the entity), the creditors will be able to get to your personal assets (a reverse piercing) or the assets in the LLC (a forward piercing).
LLCs are easy to set up. The filing fee is very inexpensive and the annual fee is pretty small; usually less than $100 per year.
LLCs can contract with mortgage lenders, real estate property managers and tenants, making them similar to operating a corporation.
Using an LLC for raising capital to purchase real estate can be set up in a number of different ways; similar to preferred stock, nonvoting stock, or common stock for a corporation. However, before soliciting investors for raising funds, you should talk with an attorney that is knowledgeable with security laws (both federal and state "blue sky" laws). There is some heavy restrictions on solicitation for securities (a membership interest in an LLC is considered a security under the security laws) and there are some stiff civil and criminal penalties for violating security laws. You definitely do not want problems with your State Department of Commerce or the regulatory agency dealing with those issues!
There are other things to know about LLCs, but the above information is some good general info to get you started.
Joseph44:
is an entity created by state law similar to a corporation. Like the corporation, the LLC has limited liability for its members (LLC owners are called members whereas owners of corporations are shareholders). A domestically formed LLC (i.e., one formed in one of the 50 states as opposed to formed overseas) can be taxed three different ways: (1) if 100% of the entity is owned by one person or entity and no election is made with the IRS to tax the entity as a C or S corporation (yes, an LLC can be taxed as a S corporation ... most people are not aware of that), federal tax law disregards the entity and considers all of the assets and liabilities owned by the person or entity owning 100% of the LLC; (2) the LLC can be taxed as a partnership if there are at least 2 members and no election is made with the IRS to tax the entity as a corporation; or (3) regardless of the number of persons or entities that are members of the LLC, the LLC can be taxed as a corporation for federal tax law purposes only if an election is made with the IRS.
A limited liability company ("LLC"
The fact that the LLC may be disregarded for federal tax law purposes does not mean that it is disregarded for state law purposes. Therefore you still get the limited liability protection. I personally like LLCs for real estate because of the flexibility and less formalities required than a corporation. If you don't follow the formalities required under the state statute and a creditor is successful in "piercing the veil" (meaning getting the court to disregard the limited liability status of the entity), the creditors will be able to get to your personal assets (a reverse piercing) or the assets in the LLC (a forward piercing).
LLCs are easy to set up. The filing fee is very inexpensive and the annual fee is pretty small; usually less than $100 per year.
LLCs can contract with mortgage lenders, real estate property managers and tenants, making them similar to operating a corporation.
Using an LLC for raising capital to purchase real estate can be set up in a number of different ways; similar to preferred stock, nonvoting stock, or common stock for a corporation. However, before soliciting investors for raising funds, you should talk with an attorney that is knowledgeable with security laws (both federal and state "blue sky" laws). There is some heavy restrictions on solicitation for securities (a membership interest in an LLC is considered a security under the security laws) and there are some stiff civil and criminal penalties for violating security laws. You definitely do not want problems with your State Department of Commerce or the regulatory agency dealing with those issues!
There are other things to know about LLCs, but the above information is some good general info to get you started.
Regards,
Taxjunkie
That was an excellent post. It clearified what i've been looking for.
thanks for the post