How to set up an LLC

To the average person, the idea of setting up an LLC may seem like a complicated process that only experienced investors should tackle. Seasoned real estate investors likely have a different idea, though, as forming an LLC to handle the purchasing of properties is fairly commonplace. As we discussed in a previous blog, you have two options for purchasing investment properties: to buy your properties as an individual, or purchase through an LLC. If you have weighed the pros and cons and decided that setting up an LLC will work best for your situation, you’re probably wondering now how to go about it. We’ve got good news for you – it’s really pretty simple! Here’s how you do it:

• Get a copy of your state’s LLC laws. Each state handles the formation of LLCs a little bit differently, so start by familiarizing yourself with your state’s laws so there are no hang-ups later on. A quick internet search will pull up the information you need, or you can contact your state’s Secretary of State’s office.

• Choose a name for your LLC. When choosing your LLC’s name, refer to the regulations and guidelines within your state’s LLC laws. Certain words may not be permitted, such as corporation, city, or bank. Your LLC’s name also cannot be the same as another LLC in your state, and it must designate “Limited Liability Corporation” or an abbreviation of the phrase at the end. You should also be mindful of choosing a name that is memorable, easy to pronounce, and will give people an idea of what your LLC is all about.

• Choose a registered agent. A registered agent is the person who will receive any legal documents, should your LLC ever be involved in a lawsuit. You can search for a registered agent online, or check with the Secretary of State’s office to see if they have a list of agents available.

• File Articles of Organization with the state. Articles of Organization refer to the documentation required to form your LLC. This is a simple form from the state’s filing office that you can fill out with basic information about your LLC, such as name, address, and the names of the owner(s). You’ll also have to pay a filing fee – somewhere in the neighborhood of $100 in most states – and provide the contact information of your chosen registered agent.

• Develop an Operating Agreement. Operating agreements aren’t usually required by the state for submittal in the LLC formation process, but it is imperative that you prepare one. An operating agreement defines the framework of your LLC, along with lots of important information, such as distribution of profits/losses among owners, voting power and procedures, and how the LLC will be managed, along with other details.

• Publish a notice. Not all states require a published announcement of your intention to form an LLC, but some do, so refer back to the LLC laws to see if you need to do this. If you do, notices are to be published in local newspapers, with proof of publication sent to the LLC filing office.

• Obtain any necessary permits or licenses. Check with the Secretary of State’s office to see exactly which permits or licenses are needed, but most states require a business license, tax ID number, IRS documentation, and seller’s licenses, among others.