Pennsylvania LLC for Real Estate
Limited liability companies are among the most popular form of business entities used for real estate investment properties.
LLCs in PA can be listed as an owner of an investment property (both commercial and residential), and a Pennsylvania LLC can also be named as the management company for a property.
There are several important advantages LLCs provide to real estate investors. LLCs in PA are easy to set-up, and unlike corporations they do not require annual meeting nor are they subject to double taxation.
The most important advantage Pennsylvania LLCs provide to real estate investors is limited personal liability.
Owning real estate can expose its owners to a great deal of personal risk if they are not protected by a limited liability company (LLC).
While insurance can cover things like slip-and-fall accidents of tenants or property damage caused by storms, if the investment property is owned by an individual rather than a Pennsylvania LLC, that individual’s personal assets – such as their home, bank accounts, retirement accounts, and vehicles are at risk in the event of a lawsuit.
When a property is held by a limited liability company, the individual’s personal assets are protected.
Those individual’s accounts are unable to be seized if the owner of the property is sued (provided, of course, that the courts are not able to “pierce the corporate veil”).
When the owner of the property is the limited liability company, only the Pennsylvania LLC’s assets are at risk if a lawsuit occurs. This is one of the major reasons why it is recommended to create a separate LLC for each piece of real estate.
Multiple LLCs for multiple properties reduces risk
Having an LLC in PA for each separate property helps to reduce risk as well. For example, a company named “Bob’s RE Holdings, LLC” holds two different rental properties, Apartment Building A and Apartment Building B.
An accident involving a tenant at building A results in the property owner – in this case “Bob’s RE Holdings, LLC” – being sued. Since “Bob’s RE Holdings, LLC” owns both building A and building B, Apartment Building B would also be at risk as a result of the lawsuit, even though the accident didn’t happen at building B. Creditors will go after all the company’s assets.
It is possible that the other piece of real estate which had nothing to do with the accident could be at risk in the lawsuit, since both properties are owned by the LLC named in the suit.
When each property is held by a separate LLC in PA, the risk is reduced.
If an LLC is sued, only those assets held by the LLC are at risk. By having a separate Pennsylvania LLC for each property, there is reduced risk of the real estate investments being subject to this kind of “spillover” risk.
Separate LLCs for ownership and management
It is also possible to have multiple Pennsylvania LLCs associated with the same real estate investment property.
This type of set-up involves having one LLC as the owner of the property and another LLC as the management company.
Real Estate LLCs can be single member or multi-member LLCs in PA
Real Estate LLCs in PA can have one member or multiple members.
Because limited liability companies are such a flexible business entity, Pennsylvania LLC members can define their level of interest and investment in their operating agreements.
Having the roles and responsibilities of each member, whether they are a silent investor or acting as property manager, is yet another way that the limited liability company offers protection to its members.
In the case of single member Real Estate LLCs, the individual can also take advantage of a level of privacy.
With the LLC itself as the owner of the property and the company where the tenants are sending their rent checks, the individual may maintain a relationship with his tenants simply as the property manager, rather than posing as the building owner.
The LLC Formation Course
Regarded as “Pennsylvania’s #1 Online Course for LLC Formation”, our online course provides you with lifetime access to the LLC formation documents (there are 2 you need) as well as detailed, step-by-step video lessons taking you through each line of all the documents.
You don’t need to hire an attorney and spend $1,000 – $1,500 to form an LLC in Pennsylvania!
The PA State filing fee is $125, and the LLC Formation Course is a one-time payment of $179.
For $304, you can form your PA LLC yourself, and rest assured knowing that it is filed correctly.
To learn more about The LLC Formation Course™, click here.