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Forming a Real Estate LLC

by 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 his shares.

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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