Would you use legal zoom to create a LLC?

[Thomas Weidner]

Would you use Legal Zoom to form your LLC for real estate or would you use a local lawyer? Why?

[Brian Eastman]

@Thomas Weidner

Legal Zoom is not going to be your best solution for several reasons.

Firstly, you should have a focused discussion with your real estate attorney / CPA to determine if a LLC will benefit you. If you are looking to hold passive rentals and use mortgage financing, for example, a LLC is essentially useless as most banks will not lend to a LLC and you will be on the note personally.

Secondly, the formation and use of a LLC involves two major components: creating the vehicle and proper use of the vehicle.

Creating a LLC is relatively simple and involves state registration and obtaining a tax ID. You can do this yourself for less than what Legal Zoom will charge as an intermediary, and the value they add would be nominal. The important piece of formation is the creation of an operating agreement. What you get from a generic provider like LZ will be exactly that, generic. An operating agreement created specifically for your intended purposes, and for your state of operations will be much more robust.

The usage and ongoing maintenance of a LLC is where the real value comes from in terms of asset protection. Just setting up a LLC makes you feel good, but can easily turn into useless paper if you do not operate the LLC properly for your intended purpose. Having ongoing guidance for the use of your entity is critical. You will get much better guidance from an attorney or CPA familiar with the real estate laws of your state of operations.

Check with @Scott Smith for his input on this topic.  He is a frequent contributor here on BP and an asset protection attorney in Texas.