Protecting Your Real Estate Investment
By: Skjold-Barthel
Why create a new entity?
The primary reason to create a legal entity in real estate investment is to protect your personal assets from risks that arise out of your real estate investments. By forming a legal entity with liability protection, your personal assets are not available to creditors having business dealings or injuries occurring on your property. The only remedy available to such a creditor is the property itself, not any of your other assets. For this reason, many prudent real estate investors form multiple entities to insulate each investment from risks created by other holdings. If you own and operate your investment property in your own name (a sole proprietorship) or without a formal agreement with other owners (a general partnership) no liability protection exists.
What type of entity is best for me – LLC, LP, corporation or something else?
The type of entity you choose depends on a number of factors, including the type of business your entity will do, the people who will be involved, and the tax consequences that result from each of the different entities. Generally speaking, most real estate investors use the Limited Liability Company (LLC) format in Minnesota because of its vast flexibility and tax treatment. In consultation with you and your tax advisor, we can evaluate other important factors to help you determine whether your business would be best served by creating a Minnesota limited liability company (LLC), Minnesota limited partnership (LP) or a Minnesota S or C type corporation. It is worth noting that most types of entities may be formed with just one participant, including LLC’s and corporations. For the aggressive real estate investor and high net worth individual, limited partnerships provide unparalleled asset protection capabilities and can also help facilitate the transfer of wealth to the next generation with important tax benefits.
How can you help me protect my investment? How can you help on an ongoing basis?
Skjold ▪ Barthel, P.A., can prepare and file the Articles of Incorporation, Articles of Organization, Certificate of Limited Partnership or other required documentation with the Minnesota Secretary of State’s office. We can also prepare the supporting documentation, and complete the necessary paperwork to obtain your federal and Minnesota state tax identification numbers. We can also prepare any agreements that you anticipate your entity will need, including, rental agreements, development agreements, purchase agreements, agreements between owners and due diligence on financing issues.
On an ongoing basis, Skjold ▪ Barthel, P.A., can assist with the annual documentation necessary to verify and assure that the entity still being operated as a separate legal entity from any of its owners. We can also assist in drafting or reviewing contracts or agreements that you may need from time to time to address specific investment issues. If the entity should ever be involved in legal disputes or litigation, we can also ensure that your interests are protected.