Title: Forming a Real Estate LLC
Author: Seth Miller
An LLC is an unincorporated business entity. The members of the
LLC enter into an agreement under which each is assigned certain
duties and a share of the profits. All income and expenses of
the LLC are then transferred to the individual owners. The
owners of the LLC are shielded completely, irrespective of their
active or inactive status. The LLC pays no tax of its own;
instead, each owner is taxed as if he was a sole proprietor of
LLCs are particularly suited to the real estate business because
real estate businesses are invariably linked to the individual
properties owned. The income, expenses, problems, and
liabilities of the properties vary greatly; hence, businesses in
this field always seek to shield their better properties from
those that are troublesome, especially in the area of liability.
All of the assets of a business can be lost if the problems in
one area result in judgments. So to avoid placing all of the
adverse properties at risk, owners place each one separately
into its own LLC. In that way, both the owners and the
properties can be shielded.
The LLC is by far the most protective and efficient business
form for real estate companies, both residential and commercial.
Each separate property can be owned by its own individual LLC,
thereby shielding not only the owners, but also their other
properties, from cross-liability. Not only this, income and
expenses are, for income tax purposes, passed on to the owners
in the proportions that the owners themselves agree to.
All owners may have a say in management without adversely
affecting tax treatment or the owners' shield from liability,
and there are no restrictions on the number of owners (2 or
more) or on the nationality or business status of the owners.
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