In California, the most common structure for real estate enterprises is an LLC. This is due to the ease with which a limited liability corporation (LLC) may be formed and operated.
If your real estate firm is sued, an LLC may safeguard your personal assets (vehicle, home, money). LLCs also provide credibility and tax-saving possibilities.
It Is Simple to Form a Real Estate LLC in California.
In California, you may form a real estate LLC by filing Articles of Organization with the CA Secretary of State. In California, the cost of forming a real estate LLC begins at $70.
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How to Form a L L C in California
Step 1: Give Your Real Estate LLC a Name
The first step in organizing a real estate LLC is to choose a firm name. You must offer your company a distinct name that complies with California naming regulations.
When you submit your Articles of Organization, you will formally register your name.
Choose a name that complies with California naming regulations:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.)
Your LLC’s name cannot include terms that imply it is associated with a government entity (FBI, Treasury, State Department, etc.)
Determine if the name is available in California. Make sure the company name you choose isn’t currently in use by doing an online LLC name search.
If you need assistance coming up with real estate company names, use naming resources like our LLC Name Generator and How to Name a Business guide.
Examine if your company’s name is accessible as a web domain. You may choose to purchase the URL in order to prevent others from using it.
Step 2: Select an LLC Agent for Process Service.
You must name a registered agent, also known as an agent for service of process in California, when you submit your Articles of Organization.
The role of an agent for service of process is to receive legal papers such as service of process and tax notifications on behalf of your LLC.
The agent for service of process for your real estate LLC might be a person or a registered agent service. Although you may serve as your own agent for service of process, many company owners choose to hire a registered agent service.
Consider the following before selecting an agent for process service:
Availability: You must be accessible during regular business hours (Monday through Friday, 9 a.m. to 5 p.m.) at the address you indicate.
Public Documents: If you conduct your company from home, you must make your home address public.
Privacy: A lawsuit might be served on you in front of your family or workplace.
Step 3: File the Articles of Organization for your LLC.
You must complete Form LLC-1 – Articles of Organization with the California Secretary of State to register your California LLC. This may be done in person, via mail, or online. It is worth noting that California has waived formation filing costs from July 1, 2022 to June 30, 2023.
Consider incorporating your real estate LLC as a S Corp. As an IRS tax classification, a S corp may give certain tax advantages to your real estate firm.
Step 4: Submit the Initial Information Statement.
California limited liability companies must submit an Initial Statement of Information within 90 days after creation. This may be done in person, via mail, or online.
Step 5: Draft an Operating Agreement for a Real Estate LLC.
An LLC operating agreement is a legal document that defines your real estate LLC’s ownership and member responsibilities. An operating agreement is required for all California LLCs.
An operating agreement may benefit even single-member LLCs.
Your operating agreement should include the following provisions:
Responsibilities of each member
How will new members be admitted?
How may current members transfer or cancel their membership?
How will earnings and dividends be distributed?
When and how will capital calls be made?
Manager liability for errors made in good faith
Tax and reporting deadlines
Members have first right of refusal and interest transfer if the property is sold.
You may include stipulations in your real estate LLC operating agreement as long as they do not violate California law.
Step 6: Obtain an EIN
The US Internal Revenue Service (IRS) uses an Employer Identification Number (EIN) to identify and tax firms. It’s essentially a business’s Social Security number.
Following the Formation of a Real Estate LLC
Following the formation of your real estate LLC, you must perform the following:
Establish a Business Bank Account. Personal and corporate money are legally separated via a business bank account. This separation is essential to keep your LLC’s corporate veil intact (i.e., your limited liability protection).
Transfer Existing Real Estate to Your New LLC If you already possess property that you want to transfer to your new LLC, you must register a deed reflecting this change. This may be done with or without the assistance of a title firm. To begin started, we suggest contacting a title business or your county clerk.
You should update your lease. If you are transferring existing rental property to a new LLC, your residential lease agreement must be updated to reflect the new ownership.
Fill out and submit your California LLC Statement of Information. Every two years, file with the California Secretary of State by the end of the month in which your LLC was created.