Real estate purchases may be tricky and full of possible problems depending on where the dealing occurs, who is involved and specific regulations in place. Because of this, many find it safer and better to purchase these estates through a company transaction such as with a limited liability company.
However, this means there must be an owner, several drafted documents in place for legal issues and an accountability for the business. When buying anything through the LLC, funds should be directed to the organization but no personal funds should exchange hands without business transactions financing the money. This means that whatever revenue is accrued through the LLC, it is subjected to taxation as a business.
Limited liability is the great draw for LLCs formation and use for real estate and many other business transactions. This is due to the insulation from standard personal risks for real estate, personal finances and other concerns when using this type of company. A person’s assets are generally not accessible through litigation. While revenue and other assets may be taxed with an LLC, the taxation is typically more lax than other companies, and the administration side of the organization is often easier than with a corporation. This leads to many in the business world seeking to buy and sell real estate through an LLC structure.
LLC Instead of Liability Insurance
The reason why more business owners or individuals researching real estate purchases are not creating an LLC is usually due to the amount of effort, time and energy it takes to create, establish and maintain a business. The LLC holds the property, and any revenue accrued through it must be channeled properly or the owner may face negative legal consequences. The protections an LLC provide against a legitimate litigation threat may not be worth the effort it takes to keep an LLC open. There are numerous documents that must be filled out and filed with the right officials and offices. Additionally, there are extra costs of starting a new business.
Instead of an LLC, those that purchase only liability insurance may face severe consequences if litigation does occur. There are significant risks involved in only obtaining the base safeguards against lawsuits. The policies purchased for liability insurance usually have certain limits and exceptions may be responsible for losing the owner a great deal of money or property. Even if there is a slim chance of these limits being exceeded, these circumstances do occur. When the individual’s personal finances are targeted through these cases, the owner may face devastating situations and an economic loss that is crippling.
LLC Benefits to Personal Liability
One of the greatest reasons to create an LLC is the benefits found to personal liability with business transactions and ventures. These may also be found through real estate purchases, sales and interactions. This means that in usual circumstances, the owner of the LLC is not the target of litigation with a customer, individual or client. The company may be targeted, but the incident must involve something the business caused to occur such as an injury. Generally, the owner of the LLC may only be specifically targeted in a lawsuit if he or she was negligent in some type of damage to another company or person.
Investments may also be held through an LLC. This would mean that revenue accrued through real estate property investments may be funneled through the company. The primary funds garnered through this manner would be held by the LLC, but the interest and other income may be cashed out to the owner. This may also shield the owner from other issues such as a messy divorce or litigation with associates. For inheritance situations, it may be possible to hand the ownership of the company to the heir receiving the bulk or large portion of assets. This could bypass a last will and testament. However, it is important to contact a lawyer to ensure all transactions are valid and legal.
The Lawyer Involved in Real Estate and LLCs
Before a new company is formed, there are several forms and documents that must be filed and sent to the correct officials. This may be determined through the state or local city. It is possible that two different lawyers are needed for these business transactions. The real estate lawyer may be necessary to ensure real estate deals are legal. Then, the business legal professional may be utilized to ensure the LLC is created correctly.