As alluring as owning a real estate investment company may seem, those beautiful profits always come with a few risks.
To minimize those risks, you have to set up a limited liability company (LLC). These corporate structures, paired with the right legal tools, give your business a basic level of personal liability protection, asset protection and tax benefits.
And the logical thing would be to set up an LLC in your home state, right?
Maybe. But what if you happen to live in a state that isn’t friendly to small business?
The quick and easy solution is to form an LLC in another state, one where the tax laws are a little more favorable to what you're wanting to accomplish. This strategy can work brilliantly, and it’s 100 percent legal and even commonplace.
In fact, it’s something we help our clients do every day, every year.
But it comes with a caveat:
To remain on the right side of the law, you are required to name a person (or company) to act as your registered agent. This is the person who is responsible for sending and receiving all of your company’s legal correspondence.
If you have an out-of-state LLC, your registered agent is your point person for business matters in the state where your company is formed. This agent will be legally responsible for maintaining your LLC’s legal and tax documents and for sending and receiving all of your company’s legal correspondence.
Your registered agent serves as your LLC’s “face.” Think of this person as your brand ambassador, but the duties go beyond simply making you look cool on Instagram. Your agent bears the responsibility for your legal and tax documents.
To have the peace of mind of knowing you are meeting the business requirements of the state where you incorporate, you need someone to assist you. Designating a registered agent for your LLC is one thing, but a registered agent service for LLCs will give you this peace of mind.
Some investors wonder if they can also serve as their LL's registered agent. Sure you can! However, you need to know this may be tedious. Will you be able to properly keep track of your LLC's documents?
Unless you’re an attorney or a CPA, you probably don’t want to serve as your LLC's registered agent. Residency can be difficult, even if you’re splitting your time between states. You must be able to perform the registered agent’s role competently throughout the life of your business. For this reason, the vast majority of successful real estate investors do not serve as their own registered agents—and they’re better off for it.
Be sure to check out our article: Do I Need A Registered Agent In Every State?
Ideally, it is best to have a qualified professional as your registered agent. There are law firms, CPAs and other professionals who can act as registered agent for real estate investors. A qualified legal practitioner will always be aware of changes in the law. He/she has enough knowledge in matters of law.
Every state is different, but here are three common rules of thumb when hiring a registered agent for your LLC.
Remember, to remain within the law, you are required to name a person (or company) to act as your registered agent.
Many real estate investors form an LLC in another state (at Royal Legal Solutions, we recommend the Texas LLC). This strategy can work brilliantly, but to remain within the law, you are required to name a person (or company) to act as your registered agent. As mentioned, this is the person who is responsible for sending and receiving all of your company’s legal correspondence. He or she will be legally responsible for maintaining your LLC’s legal and tax documents.
Registered agent services for LLCs come with a few other perks:
Not designating a registered agent for your LLC is downright reckless. If you get caught, you can expect a legal backlash that may include anything from fines to exclusion from the court system, which will make it very difficult (and illegal) to run your business. Some states may even pursue criminal charges.
Knowing this, would you really risk prison time to save the $45 to $95 it’ll cost you to hire a registered agent service for your LLC? This tax-deductible fee should be regarded more as a small investment in asset protection than a shrewd cost-cutting opportunity.
A professional agent can help you focus your efforts where they belong: on your business.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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