Is there a benefit in creating an LLC (asset protection or $$ for initial setup) in a state other than your home state? I ask this because in years past, there was always the thought that having a corp. setup through Nevada or Delaware provided an extra layer of asset protection. Having said that, I just purchased an out of state property (in my own name) and am looking into the options of moving it over to an LLC (not yet created).
Thanks for all of your help. The REI club forums have truly been a wealth of information.
Moving it to your LLC will protect your personal assets, but the property is still partitionable and subject to liens and encumbrances. Place it in a land trust before assigning the interest to your LLC and you have total protection.
Gary, thanks for your reply. Ok. If I setup a land trust and move the property over to an LLC,
are you familiar with the costs associated with doing just that (the setup of the land trust and the setup of the LLC)? I see that costs associated with setting up an LLC can vary by $400-$500 or so depending on the state that recognizes the LLC. Any benefit to doing a Nevada (or another state) LLC when I live in Illinois?
To set up a simple land trust it’s about $325. If you’re doing a trust with more than one beneficiary, it’s 1% of the agreed upon value plus $250 for legal and accounting review. This cost is recovered with your tenant’s down payment.
Just don’t set up a LLC in California. I hear they are quite expensive
the privilege to do business in Calfornia is $800 a year
here is a link with all the tax stuff in CA… Franchise Tax Board Site
There are no significant differences between LLC and S/C Corp with regard to taxes UNTIL you are making a LOT of money. At this point, the plan changes.
There ARE significant differences between the amount of administrative hassle required: Corps require annual meetings, resolutions to buy things etc etc. lots more paperwork than an LLC.
There are MAJOR differences between LLC and Corp with regard to asset protection. These are general guidelines that apply in TX and NV, I would assume most states to be similar, but that’s the disclaimer.
Both entity types effectively protect you personally from liability arising from within the entity (landlord gets sued).
However the difference is what happens to the entity if you personally are liable (you rear-end someone in your Pinto)
Ownership of corporate stock is an “investment” whether it’s IBM or Joe’s Real Estate Co. Investments can be ordered transferred to satisfy a judgement in court. This would make your adversary owner of your corporation and all the assets it owns and controls.
Ownership interest in an LLC is considered “personal property”. as such it is not available to satisfy judgements, effectively isolating your company from your personal liabilities. A very significant difference.
Regarding out-of state entities: Texas requires you to register as a foreign (NV) company doing business in TX. It’s more expensive than having a TX entity in the first place. Plus you have to conform with all the disclosure requirements of TX, effectively eliminating any privacy benefits.
It’s hard to cover all the details in a forum format, but let me know if you have any more questions.
Mark Wagner, CPA