Choosing a business entity for your real estate transaction
A real estate attorney is often called upon to counsel clients in entity selection and formation. When purchasing real estate, a business entity, whether it be a limited liability company, corporation, limited partnership, or perhaps a land trust should be used to assist in insulating the individual from personal liability and segregating liabilities. The big exception being the purchase of one’s primary residence. Using a business entity as the ownership vehicle for your primary residence jeopardizes the ability to claim homestead exemption for property tax purposes and avoiding attack from a third party creditor holding a monetary judgment seeking to foreclose. For less complex transactions involving non-primary residence property limited liability companies are often the entity of choice due to its ease of management and simple administration. Limited partnerships tend to be used in larger projects by developers. Land trusts are useful if the individual seeks anonymity by avoiding having his/her name appear in the public record as the owner. Delaware and Nevada limited liability companies could be used for that purpose as well. Regardless which entity is utilized good practice involves creating an operating agreement for LLCs, shareholders agreement for corporations, partnership agreement for limited liability partnerships, or a land trust agreement for land trusts to delineate in writing all parties respective rights and obligations. A tax advisor should always be consulted to ensure the correct entity is chosen for tax purposes as well.