Considerations for Forming a Florida Limited Liability Company (LLC) for Real Estate
4 Considerations When Forming a Florida Limited Liability Company (LLC) for Real Estate
For individuals who own real estate in Florida, it is important to consider the best way to structure your ownership, such as by holding your property in a Florida LLC. When you are just starting out as an investor in real estate, you may hold title to the real estate personally, but that may not be the most advantageous method of ownership. Another option is to create a Florida limited liability company (LLC) for your real estate ventures. An LLC is a type of legal business structure organized under Florida law that’s popular among entrepreneurs for numerous reasons that you can read about here.
There are many important considerations to keep in mind as you decide whether to form a Florida limited liability company to hold your real estate. Here are a few things to think about to help you make the best decision for your unique circumstances.
1. Liability Protection. One of the most significant characteristics of a Florida limited liability company is the limited liability it provides its members (i.e., owners). LLCs allow you to separate your personal assets from your business assets. In doing so, the LLC separates the liability to which each set of assets may be subject. This separation means that if real estate owned by your LLC is at risk from litigation or creditors’ claims, your personal assets will not be at risk. There are limited exceptions to this rule. For example, if you did something negligent or intentionally wrong that led to litigation, even during the course of the LLC’s business, you may be personally liable. However, compliance with your state’s rules and careful steps aimed at distinguishing your personal property from that owned by your business will allow the LLC to provide greater protection against personal liability.
2. Taxes. Another factor you should consider is the tax impact of creating a Florida limited liability company. Single-member and multi-member LLCs that hold real estate can enjoy the benefit of pass-through taxation. In some cases, the transfer of your real estate into an LLC may not have a significant immediate effect. However, depending on how many owners your LLC has, whether you have a mortgage and how much (if anything) you owe on it, and the value of the property, you may have significant tax issues to consider.
3. Privacy. Creating a Florida limited liability company may provide greater opportunities to keep information about what you own private. This increased ability to keep your identity as an owner private varies by state. Different jurisdictions have different rules regarding how much disclosure is required to form and maintain an LLC. Depending on your particular situation, you may be able to structure your business ownership so that the public at large does not have knowledge about what you own. This can be a helpful asset protection strategy if you could ever be involved in litigation or if any of your properties are exposed to risk.
4. Tailor-Made Terms of Ownership. Finally, one of the most significant benefits of the Florida limited liability company is the opportunity to tailor the structure of your business. This means that you can define how you will split profits and losses in the real estate and how decisions will be made. These are two examples of ways you can enjoy the flexibility provided by an LLC, but there are many more. Some people create multiple entities, with one LLC focused on the management of the real estate while the other LLC or subsidiary LLC owns the assets. From determining your LLC’s tax structure to deciding whether to have annual meetings, you can design the company’s structure so that it will function in a way that makes sense for the specific assets it owns.
Florida LLCs provide a host of options for individuals interested in maximizing their protection against personal liability and determining effective tax, ownership, and management plans.
If you’re interested in using a Florida limited liability company to protect your real estate and other assets, then contact our St. Petersburg offices by calling (727) 279-5037 or by scheduling a consultation with us online today.
Reproduced with minor alterations with permission from Wealth Counsel.