Creating a real estate LLC in the U.S.

There are two types of business entities that usually will qualify for loans from private lenders — limited liability company (LLC) and corporation.

• Limited Liability Company: These types of companies roughly equate to “Sociedad de Responsabilidad Limitada – ‘SRL’ or ‘LTDA” in Latin America.
• Corporation: These types of companies roughly equate to Sociedad Anónima – ‘S.A’ in Latin America.

How to Create a Limited Liability Company in the U.S.

Choose a company name

In the State of Florida, you can search on www.sunbiz.org to make sure that the name you’ve chosen is available.  The Company name must end with LLC or L.L.C. The same service is available for other states as well by visiting the respective state’s Secretary of State website.

Prepare the articles of organization

This is the document that must be filed with the Secretary of State in order to start a Company.  In the state of Florida, Sunbiz provides forms free of charge and online filing is available. 

Prepare the operating agreement

Unlike a Corporation, where most of the framework for the operation is set forth in corporate statutes, the governance of an LLC is akin to a partnership.  It must all be set out in the document that is called the Operating Agreement.  It is important to hire an experienced lawyer to prepare that document in the correct manner. This is especially important when there will be more than one member of the Company.

Register the company with the Secretary of State

The Company can be formed in any state; however, if it is formed in a different State than where the collateral property is located, it must also be “authorized to do business” within the State where the collateral property is located.

Ownership

Beneficial owners of a limited liability company are referred to as “Members”. Typically, for private lenders, a member with ten percent (10%) or more of the ownership in a Company will be expected to guaranty the loan from a private lender.

Management

The limited liability company can be managed by the Members of the LLC or by a Manager.  This choice must be made in the Articles of Organization for the Company.  The person or persons authorized to sign on behalf of the Company should be listed in the Articles of Organization as well.  Regardless of the choice of management elected by the owners, the same persons who are charged with the management of the Company will be required to sign the loan documents in favor of the lender.  Please note that these records are public.

How to Create a Corporation in the U.S.

Choose a corporation name

In the State of Florida you can search on www.sunbiz.org to make sure that the name you’ve chosen is available.  The company name must end with Inc, Incorporated, Corp, Co or Corporation. The same service is available for other states as well by visiting the respective state’s Secretary of State website.

Prepare the Articles of incorporation

This is the document that must be filled out with the Secretary of State. Sunbiz provides forms free of charge and online filing is available. 

Prepare the company bylaws

Unlike an LLC,  this document does not need to be signed, and forms can be found with ease online or accompanying the corporate book.

Obtain the official corporate book

Also unlike an LLC, a Corporation requires that a corporate book and share certificates be issued to the owners.  A Corporation must keep the formalities of a corporation (like minutes), in order to keep its liability protection of the owners. The corporate documents must be updated regularly for protection to be maintained.

Register the company with the SECRETARY OF STATE

The Company can be formed in any state; however, if it is formed in a different State than where the collateral property is located, it must also be “authorized to do business” within the State where the collateral property is located.

Management

Corporations are expected to have both directors and officers. The directors are elected by the Shareholders, and the directors appoint the officers. Directors and officers do not have to be shareholders. Private lenders require that the Corporation have a Secretary, a President and at least one Director.  All of those can be the same person, but should be designated as such with the filing, with the letters P for President, S for Secretary and D for Director. Additional offices are available such as Vice-President, Assistant Secretary, Treasurer and Assistant Treasurer, although they are not required.

Ownership

Beneficial owners of corporations are referred to as “Shareholders”.  Any Shareholder with ten percent (10%) or more of the ownership in the Corporation will be expected to guaranty the loan from the lender. 

Things to know for Both types of Entities

Legal address of the company

The address of the entity cannot be the property that is being financed and leased.

Appointment of registered agent

This person or company accepts lawsuits and notifications on behalf of the entity and must be located within the State where the property is located. They must keep regular office hours. There are various organizations that can provide this service in exchange for an annual fee for the service of being a registered agent.

Obtain the EIN Number

The entity must obtain an Employer Identification Number (EIN), also known as a Federal Tax Identification Number.  This number is used to identify a business entity as it will be paying U.S. taxes.  The identification number will also be necessary in order to open a bank account in the United States.

Open a corporate bank account

A U.S. bank account, in the name of the entity, is required in order to make the payments to the lender, to receive rental payments, and to pay the expenses of the Property being financed.

Tax Implications

Up next we have a two part overview of the types of tax considerations for foreign investors in Real Estate in the United States.

This Article was written by