Frequently Asked Questions for Establishing a Limited Liability
Company (LLC) for Real Estate
Many of our clients call us and meet with us to discuss their goals of establishing and operating a limited liability company (LLC) for real estate in Georgetown, Texas, San Antonio, Texas, and all of New Mexico.
***NOTHING IN THIS ARTICLE IS TO BE CONSIDERED AS THE RENDERING OF LEGAL ADVICE FOR SPECIFIC CASES, OR CREATING AN ATTORNEY-CLIENT RELATIONSHIP, AND READERS ARE RESPONSIBLE FOR OBTAINING SUCH ADVICE FROM THEIR OWN LEGAL COUNSEL. THIS ARTICLE IS INTENDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY, AND NO WARRANTY OR REPRESENTATION IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.***
We would be happy to discuss your individual facts and circumstances analyze your how your specific situation is affected by the following question, and give you professional legal advice after you decide to hire this law firm and pay your legal fees. Before you decide to hire us to provide you legal services, you may want to read the following educational information.
Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.
What are the benefits of putting the house in an LLC?
Members of an LLC have limited liability and are free to participate in management of the company. Generally, the liability of the members is limited to their investment. A judgment against the LLC entity does not extend to personal liability of the individual. The individual’s other assets are not up for grabs.
What are the disadvantages?
Persons contemplating forming an LLC are well advised to consult competent legal counsel. Some people think that attorneys are arrogant. Some people don’t like to pay legal fees for legal services. Some people don’t understand how a business entity works. Some people don’t like to treat a business entity like a separate individual.
If you have financed the real estate through a mortgage or loan, you might need to obtain permission from your lender before transferring title from your name individually to the name of your LLC. Frequently, the fine print in your mortgage or loan agreement includes a “due-on-sale” provision. The due on sale clause might accelerate your loan and make the total amount due. Some individuals will take the extra step to ask for permission and other individuals will pay off the loan before transferring it to the LLC. If transferring the property is not a good option, another solution might be to use the LLC as a real estate management company.
Don’t be fooled into thinking that the LLC shields you from liability on the mortgage or the note itself. Banks and mortgage companies frequently require the majority owner of a startup company to guarantee payment of the loan.You might be able to limit your liability for accidents or frivolous lawsuits on the property but you probably won’t be able to avoid responsibility to pay the mortgage loan.
Are there tax advantages with an LLC?
Only the person who prepares your individual federal income tax return can tell you for sure whether you might be able to reduce your federal income tax liability with an LLC.
Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.
What are the costs to create my LLC?
The cost of the services we provide you depends on your needs, wants, goals, and objectives. We offer project-based representation and a retainer for legal counseling.
Option 1: Project-Based Representation (No Retained Legal Counsel Plan)
- Prepare certificate of formation for simple, single member LLC;
- File legal documents with State of Texas;
- Prepare company agreement for simple, single member LLC;
- Prepare minutes for first meeting.
Total Project-Based Fee
(No Retained Legal Counsel Plan):
Option 2: Combined Project-Based Representation (with Retained Legal Counsel Plan )
Discounted Project Fee:
- Attorney communications by telephone and e-mail (1 hour monthly limit)
- In-person meetings with attorney each month (1 hour limit)
Document Revisions, Review, and Service of Process
- Periodic review of business documents to be sure that they are current, properly coordinated, and legally compliant
- Make minor changes and revisions to business documents as required by changes in the law and at Company’s request, but not to exceed twice per year.
- Serve as registered agent for service of process as required by law
Meeting Minutes, Periodic Reports and Filings
- Prepare the agenda, notices, and minutes in connection with annual meeting
- File any periodic reports required by the Secretary of State
- Respond to periodic requests for information from the Secretary of State
Ownership Transfers and Review
- Prepare ownership certificates as required, and create and maintain ownership and transfer logs throughout the term of this Agreement
- Conduct annual review of titling of Company assets and provide assistance and advice regarding titling or transfer of assets into Company.
Annual Business Audit
- Conduct annual business audit
Important Reminders and Updates
- Provide reminders and checklists to help you keep track of important dates and legal requirements that affect your business
- Periodic legal newsletters and updates
- Maintain a duplicate copy of Company’s business documents.
- Provide notary services
- Free attendance at any of Firm’s educational workshops held throughout the year
Retained Legal Counsel Plan Membership Fee: $
Payable in 12 monthly payments of $
Total Project-Based Fee
(With Retained Legal Counsel Plan):
What are the expenses to maintain the LLC?
Each taxable entity formed in Texas or doing business in Texas must file and pay franchise tax. Franchise tax reports are due on May 15 each year. These entities include limited liability companies (LLCs). Franchise tax is based on a taxable entity’s margin. Unless a taxable entity qualifies and chooses to file using the EZ computation, the tax base is the taxable entity’s margin and is computed in one of the following ways: total revenue times 70 percent; total revenue minus cost of goods sold (COGS); total revenue minus compensation; or total revenue minus $1 million (effective Jan. 1, 2014).
The fees, costs, and expenses for filing your federal income tax return depend on the complexity of your earned and unearned income sources, your exemptions, credits, and deductions, and the tax status you choose for your LLC.
Fees, costs, and expenses to maintain the LLC also depend on whether you represent yourself or whether you hire a CPA and attorney. Fees, costs, and expenses vary with the professionals you hire.
Is there any benefit to creating the LLC before the purchase of the property is complete?
A member of an LLC only limits liability if an LLC has been legally established and recognized by the State of Texas. The most common and the simplest form of business is the sole proprietorship. The sole proprietor accepts personal responsibility and liability of the proprietorship.
How do I get started?
We only represent business owners and business entities after we perform a conflict check, after your discuss your needs, wants, goals, and objectives with us, after we consider our ability and readiness to accept the challenges you present, and after you agree to hire us to provide legal services and you agree to pay legal fees.
Call Marquardt Law Firm, P.C. at 210-530-4278 in San Antonio, call 512-766-3782 in Georgetown, or call 575-430-2353 in New Mexico when you have decided to start your business and hire an attorney to receive legal representation and advocacy to limit your liability.