What Is A Real Estate LLC- By: David Cowley
If you are a Realtor looking to become independent from your current employer, you may be wondering if starting a Real Estate LLC company is right for you. You may know of other colleagues who have gone this route, and some who haven't, and may ask what the difference is between this type of company and just working with an Assumed Name certificate. Let's see what a Real Estate LLC really is and how it's different from a corporation and then perhaps you can make the best decision from there.
Note first of all that LLC stands for Limited Liability Company, and as the name implies, it limits the liability of the owner or owners of the company. A LLC would then allow for more than one person to become owners of that company without having to form a joint partnership and without one being the sole owner or proprietor of the business. Because of the potential liabilities with real estate, an LLC may be the best option for those in the industry. While such things as title insurance and appraisals from outside sources protect a Realtor from what is called errors and omissions, there are still times when he or she may be liable for what a home buyer perceives as inaccurate information or even downright misrepresentation. While it's very rare for a Realtor to be sued by a home buyer, it does happen in certain circumstances. By forming a Limited Liability Company you are giving yourself and your company an added layer of protection above and beyond your Errors and Omissions Insurance.
There is also some leeway in the tax structure of a Real Estate LLC. If you have multiple members that are forming this company, you may choose to be treated as a C corporation, as an S corporation, or as a partnership when it's tax time. With a C corporation, there is usually taxation of the company's income and dividends. With an S corporation, the company itself does not pay taxes but rather the revenue is divided among the owners of the company and they report it as income on their personal taxes. Depending on your own personal tax structure and base, and the advice you receive from your CPA, a Real Estate LLC may result in you paying far less by way of taxes than you would pay if you were working under an Assumed Name or Doing Business As. There are of course restrictions on whether or not your Limited Liability Company actually qualifies as an S corporation, for example, you may not exceed 100 shareholders. If this or other restrictions are disregarded, your LLC immediately reverts back to being treated as a C corporation.
Forming a Real Estate LLC is no more difficult than forming any other basic business. Typically business paperwork is filed with the county in which you live. Most counties today have business paperwork available on line; you can simply print off the necessary forms, have everyone involved in the Limited Liability Company sign the papers, and send it in to your county clerk's office with a small check for their processing fee.
While a Limited Liability Company may be a very simple structure for a business, it's always important to speak with an accountant and possibly even a business lawyer before you decide what to do, and follow his or her advice carefully. With today's volatile real estate market and with so many mortgage companies being investigated for out-and-out fraud, you definitely need to protect yourself, your family, and your business partners. Forming a Real Estate LLC is a great first step in doing just that, but of course you should view it as only a first step. Make sure you're following your accountant's and your lawyer's advice and you're sure to have success in the real estate market.
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