Transferring property to a limited liability company (LLC) can provide both tax benefits and asset protection. A less structured entity, an LLC provides greater freedom than a corporation in managing real estate assets. Single-member LLCs also have the advantage of claiming profit or loss on the member's personal tax returns. This advantage, combined with the liability protection offered by an LLC, makes transferring property to the company an attractive option. Once the LLC is formed, the process is similar to most real estate transactions.
Forming the LLC
Organize a meeting with the prospective members of the LLC. Outline a plan for managing the company and its assets.
Draft an operating agreement. The agreement will outline, in writing, the governance of the LLC as determined by the members/managers. This step is not required for single-member LLCs.
File the appropriate paperwork with the LLC's state of operation. The documents and requirements will vary depending on the state. The primary document is commonly known as a "Certificate of Formation" or "Articles of Organization." The document is typically filed with the state's Secretary of State or Department of Treasury.
Pay the registration fee. As of February 2011, this fee ranges from $30 to $200, depending on location.
Apply for a federal employee identification number (EIN) with the IRS. This can be done online, in person or by phone.
Transferring the Property
Prepare a deed between the current owner and the LLC. Deeds can vary based on the types of warranties, the individuals performing the transaction and the type of property. Consult an attorney if you are unsure of how to prepare the document.
Draft a resolution for the LLC to purchase the property. If the LLC will obtain financing as part of the process, this should be included in the resolution. Obtain all necessary signatures from the members/managers of the LLC.
Make arrangements to pay off any outstanding liens on the property, such as mortgages or home equity loans. Depending on the amount of the indebtedness and the cash flow of the LLC, it may be necessary to obtain financing to do so.
Execute the deed. The deed will need to be signed by the grantor(s) of the property and the members or managers (detailed in the operating agreement) of the LLC. Have the document notarized.
Submit the document for recording at the county clerk's office of the subject property. This will list the LLC as the owner of record.
It is a good idea to execute multiple copies of the deed in case the document gets lost or damaged prior to recording. An attorney can certify the duplicates as “true copies.”