RENT OWN SELL
Newyork
RENT OWN SELL
Newyork
Any kind of real estate transaction automatically entails some risk, not just for the buyer but for the broker as well. That’s simply the nature of doing business in a field that’s volatile and litigious, and where transactions always involve large sums of money.
Fortunately, there are some simple steps that any broker can take to enact a legal shield, mitigating their risk and curbing the potential for loss. One such step is to register their business as a Limited Liability Company, or LLC.
For anyone who works in real estate, it’s valuable to know what an LLC is, and how it helps alleviate risk.
The LLC format has been around since the 1970s. Since then, it’s become widely used across businesses in virtually every industry. Crucially, though, the LLC was originally developed with real estate businesses in mind. Its benefits are uniquely suited to support brokers.
Here’s one way to think about the LLC. When you start generating self-employed income, whether by selling real estate or something else altogether, the government thinks of you as a Sole Proprietor. With this legal designation, you have no way to separate business assets from personal assets, nor business liabilities from personal ones.
You can probably guess as to why this model might be problematic, especially for those who work in real estate. If someone sues you, they’re not just claiming your professional revenues, but potentially to your personal savings account or family nest egg. Again, there is no legal distinction between the business and its owner.
LLCs work a little differently. When you register your real estate business, you’re creating a whole new legal entity. In other words, you’re making it so that there is a distinction between you and your company. So, if someone brings a lawsuit against the business, they’re not bringing it against you. The upshot is that your personal assets are off the table.
And it’s not just litigation that’s in view here. The LLC format, and its clear distinction between personal and business finances, also keep your personal assets off-limits to potential creditors, ensuring that business liabilities do not become personal ones.
Among the many benefits of the LLC: Real estate brokers can feel a little more confident making prudent investments in their business, knowing that they can maintain some personal wealth protections and legal shields.
It’s important to note that the LLC structure offers a whole host of benefits for real estate brokers, above and beyond personal wealth protection.
Consider just a few additional perks to choosing the LLC format:
These are just a few of the reasons why it makes sense for real estate brokers to register as LLC.
The process of registering an LLC can vary from state to state, but generally speaking it works like this.
You’ll need an official, legal name for your LLC. The main thing to keep in mind here is that you’ll be required to choose a name that isn’t in use by another LLC in your state.
You’ll need to name someone to serve as your Registered Agent, receiving legal documents on behalf of your brokerage business. This is a legal requirement for all LLCs, and you’ll need to have the name and contact information of an Agent before you file your incorporation documents.
Needless to say, establishing a new legal entity entails some paperwork. Specifically, you’ll need to file Articles of Organization with the state where you’re registering. So, if you’re aiming to start a Wyoming LLC, file with the Wyoming Secretary of State’s office. You’ll also need to pay a nominal LLC filing fee, the amount of which varies by state.
For tax purposes, make sure you have an Employer Identification Number, which you can claim for free from the IRS.
One more consideration: Legally, you can register your LLC in whichever state you like. But to keep your taxes streamlined and simple, it’s always best to register wherever you’re making money, e.g., where your real estate investments are located. If you have properties spanning multiple states, you may wish to file in each.
The LLC format isn’t just legalese. It’s an important tool to protect your personal and business interests and to position your real estate brokerage for ongoing success. Consider registering your business as an LLC today.
