Families or individuals who own multiple investment properties, multifamily apartment buildings or lease to commercial tenants, should consider purchasing properties as an LLC or transfer current properties into a newly formed LLC.
What is an LLC?
An LLC is a business entity created under Massachusetts law by drafting and filing Articles of Organization with the Massachusetts Secretary of State. An LLC is like a corporation as a form of business operation, however operating an LLC does not require as many formalities as a corporation. For example, there is no need to appoint a board of directors. In fact, an individual (called a member) may form an LLC and then gift or sell property to it.
What protections does an LLC offer?
An LLC is considered an independent legal entity, and carries its own independent Tax ID Number. Once you gift or sell property to an LLC, it becomes the LLC’s property, not yours. Your personal creditors normally cannot reach LLC assets to satisfy your personal debts (the LLC can only be sued within the constraints of what the LLC owns).
What are the drawbacks of an LLC?
There are additional costs to forming and maintaining an LLC, such as initial filing fees, annual fees, and increased insurance rates. However, for the added protections described above, the recommendation is to purchase as an LLC for those that own multiple investment properties, multifamily apartment buildings or lease to commercial tenants.
As an example, if a claim is filed against a property for negligent removal of snow and ice, and the property is owned:
- personally, the Court can attach your personal property in order to collect a judgment against a claimant.
- by an LLC, the Court cannot seek satisfaction of the damages through your personal assets, but only through those owned by the LLC.
Please call our offices to discuss your particular circumstances.