Forming a limited liability company (LLC) is a common way for real estate investors to protect their personal assets. With an LLC, investors limit their personal liability if legal issues arise related to rental properties or other real estate holdings. In the past, LLC formation required extensive paperwork and legal filings, but today the entire process can be completed conveniently online. This article provides a step-by-step guide to forming an LLC online specifically for real estate investment. We’ll cover the key steps and requirements, costs and fees, tips for choosing a registered agent, and the pros and cons of DIY LLC formation versus using a professional service.
Check your state’s requirements for forming an LLC
The first step is researching your state’s specific requirements for forming an LLC, as regulations vary by state. Most states require designating a registered agent, filing articles of organization, and drafting an operating agreement. Requirements related to registered agents, filing fees, taxation, and other rules can differ significantly across states, so be sure to check the official guidelines for where you plan to form your LLC.
Choose a business name and check availability
Next, brainstorm names for your real estate LLC and then verify availability by checking your state’s database. The name must include an official LLC designation such as Limited Liability Company or LLC. It’s wise to have a few backup names in case your first choice is taken. You’ll also need to check that the URL is available if you want a website.
Select a registered agent
A registered agent is a person or company authorized to accept legal documents on behalf of your LLC. All states require designating a registered agent, which can be yourself, a family member, or a professional service. Using a pro service offers reliability since they’re available during business hours to receive important legal notices. Do research to find an affordable registered agent that provides address services in your state.
File your articles of organization
The articles of organization formally register your LLC with the state. This document must include your business name, registered agent info, LLC purpose, member/manager names, and other details specified by your state. You’ll submit this document along with a filing fee to your state’s LLC office (often the Secretary of State).
Create an operating agreement
An operating agreement is a legally binding document that outlines ownership, structure, rules, and regulations for your LLC. Though not required in all states, it’s highly recommended for real estate LLCs to specify ownership percentages, voting rights, profit/loss distribution, member responsibilities, and other governance details. This helps prevent disputes and ambiguity down the road.
Get an EIN from the IRS
For tax and banking purposes, you’ll need an employer identification number (EIN) for your real estate LLC from the IRS. You can easily apply online and get the EIN immediately upon approval. As a single-member LLC, you can use your SSN instead but getting an EIN adds legitimacy and separates your business finances.
Open a business bank account
Having a dedicated business bank account keeps your rental income and expenses separate from personal finances, which is important for accounting, taxes, and liability protection. Bring your approved articles of organization, EIN, and operating agreement to the bank when opening the account.
Forming an LLC online for real estate investing provides flexibility, convenience, and legal protections. Following the key steps outlined above allows investors to establish an LLC completely online in most states while avoiding the cost and hassle of hiring lawyers. Real estate investors should be sure to comply with their state’s specific LLC requirements and create a detailed operating agreement.