Investors looking to get into commercial real estate often create partnerships or new companies. After determining their long-term strategy, how many properties and what type of properties they plan to buy, many find one of the many Limited Liability Corporation structures is a good fit.
A straightforward arrangement
LLCs are a hybrid between a partnership and a corporation. Those who use LLCs (they are called members) often appreciate how the structure addresses many essential details. There is an operating agreement (or LLC Agreement), which covers necessary organizational matters. The specifics often include:
- Management structure
- Ownership roles and responsibilities
- Where capital is invested
- How and when members must or can sell equity or leave
- Other arrangements specific to the business and its objectives
Every business structure has its pros and cons. LLCs strengths often include:
Asset protection: LLCs usually provide corporate-style protection of members’ other assets from liabilities, risks and setbacks.
Taxation: It depends on how the LLC elects to be taxed for federal income tax purposes, but members individually report earnings and pay the appropriate taxes.
Anonymity: An LLC is a separate entity from an individual. It gives investors and owners a certain amount of anonymity from the public, although members and new investors should know the identities of their partners.
Strategic planning is essential
Investing and starting new ventures always involves risks, even in the relatively secure commercial real estate market. Working with a business law attorney can help effectively structure the LLC to minimize unnecessary risks and best address the goals of its members.