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Guest JoeB

Do I really need to form LLC?

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Guest JoeB

Hi,

My brother and I plan to buy fixer-upper and fix it up to sell or lease it out;

we don't offer service to other people. Do we still have to file LLC?

 

 

thanks.

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Forming an LLC, or a corporation, is not a requirement. However, it makes sense from a practical standpoint. In the event something should go wrong and a buyer or tenant decides to sue you, if the property is under the LLC or the corporation, your personal assets are protected and you are not personally liable.

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Hello Joe,

 

I agree with Michael C.---forming an LLC (or other appropriate legal entity) just makes sense. When you're dealing with real estate, if there is a dispute, the amount of money at issue tends to be relatively great...e.g. $500,000, - $750,000 wouldn't be unusual at all in California.

 

With a properly formed LLC your liability is limited to the assets in your real estate business...assuming you use the "LLC" designation on your cards, letters, emails, etc. Without this type of protection, all of your non-exempt personal assets are available to satisfy a judgment.

 

Sure, it costs a few bucks to form and maintain an LLC, but its well worth the peace of mind you get...after all, this is called "Creative Real Estate" for a reason...and some stick in the muds don't appreciate the "Creative" aspect of it!

 

Regards,

 

Mike P. :)

The Legal Eagle

 

p.s. As soon as you sell or lease property you are offering services to "other people."

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A question for Mike, the Legal Eagle:

 

Should I hold off on doing any business at all with homeowners and T/Bs until I have an LLC (or whatever entity) set up? I haven't found a seller yet (but haven't given up either and won't) willing to sell on a LP basis, but I remember something Michael said when he spoke at our REI club in September, and that was only to do business with some sort of incorporation in place.

 

Another question: since you're here in Sac, how can I contact you for some consultation?

 

Thankee, thankee, thankee.

 

California Rick

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Rick, Mike Pinkerton is no longer with us as our in house attorney. He changed firms and decided he doesn't have the time to moderate the board. However, he can still be contacted via email. I'm sure he won't mind. Click on the Card button in the left hand column under his screen name. You'll have the option of emailing him or PM'ing.

As for your question, yes, avoiding your name and the ensuing personal liablilty on a real estate transaction only makes sense. Problem is, you California residents get socked with an $800 LLC tax every year. :huh: Still, when I look at the big picture, that's relatively cheap insurance when compared to what litigation might cost you if you are ever sued.

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Still, when I look at the big picture, that's relatively cheap insurance when compared to what litigation might cost you if you are ever sued.

 

I know this is a relatively complicated subject, but once you decide to form an entity, where should you begin? I've seen different services/courses that are supposed to help you incorporate, but are those really necessary? Example: There's a kit available at Office Max that is supposed to have all of the necessary documents to submit to the proper state agency. Is this a good place to start? Is it necessary to have an attorney help you?

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For an LLC, no, an attorney isn't necessary. Go to the NV Secretary of State website for info. It's a fairly straightforward process.

As for forming a corporation, I'd recommend at attorney. It's a bit more involved, and you're much better off having a pro assist you.

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Thanks for the info, MC. Yeah, California's not a very business-friendly state, what with that 800-dollar LLC tax they bend you over for every year, and a host of other things, but with liberals running the state as they currently are, I don't see that changing anytime soon. Hopefully, Arnold sounds like he wants to change that somewhat, or completely, we'll see. I'm looking, too, into seeing what I can do in Nevada. However, 'cuz I don't live and, therefore, am not based there, I'll probably have to register an agent there and all, blah, blah, blah, but I appreciate the input. Now, to scrape together the $$ to do it.

 

California Rick

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For an LLC, no, an attorney isn't necessary. Go to the NV Secretary of State website for info. It's a fairly straightforward process.

 

Thanks MC. You're a rockstar! :huh:

 

Yeah, California's not a very business-friendly state, what with that 800-dollar LLC tax they bend you over for every year, and a host of other things, but with liberals running the state as they currently are, I don't see that changing anytime soon. Hopefully, Arnold sounds like he wants to change that somewhat, or completely, we'll see. I'm looking, too, into seeing what I can do in Nevada.

 

Going by my understanding of the laws, this may not be the best way to go. Granted states like Nevada and Delaware are business friendly since there's no state income tax but from what I understand, since you'd be doing business in CA you'd still be subject to CA state taxes. This may or may not outweigh the benefits on Nevada. Liberal CA bastards......... :huh:

 

If this wasn't the case, every corporation in America would be better off incorporating in only two, maybe three states (I believe Wyoming is also corporation friendly).

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Yeah, I hear ya, Brian!! :rolleyes: So you don't think an LLC would be the best way to go? What suggestions do you have? Or anyone else for that matter? I have to admit it's only recently that I even considered doing this, so I'm not very educated about which entity is the best to use. Having it actually done isn't so much the problem as you can do it online for a small fee (a lot cheaper than going to your friendly (?) neighborhood attorney). It's just which one to go with. Thanks, guys.

 

Calif Rick

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Yeah, I hear ya, Brian!!  So you don't think an LLC would be the best way to go? What suggestions do you have?

 

I'm sorry. After re-reading my post, I wasn't completely clear. I'm not saying that an LLC isn't the way to go. It's my understanding that if you form an entity in Nevada (or any other state for that matter), you're still subject to the laws of the state that you do business in. Like I said, otherwise I'd bet that everyone would incorporate in only the two or three "tax-shelter" states.

 

The entity that you choose to form depends on your personal situation. There are benefits and drawbacks to each one and there's no clear-cut "best entity". There are some really good threads in the tax forum about the different entities. Your accountant would also be able to help you decide what's best for your situation.

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Oh, OK, I think I gotcha now. Even if I form an LLC in Nevada (or wherever), I would still be subject to this $800/year LLC tax simply because I'm doing biz in California. It makes sense now. Thanks for your input. I'm thinking an LLC is the way to go.

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