LLC for Rental Property in Texas

If you are looking for a way to protect your rental property investment in Texas, forming an LLC may be the right choice for you. An LLC, or limited liability company, is a business structure that can provide personal asset protection for its owners. Your assets will be protected if your rental property is sued or faces other legal action.

LLCs are also relatively simple and inexpensive to set up and maintain. And, if you choose to, you can have your LLC taxed as an S corporation, which can provide significant tax benefits.

If you are ready to form your LLC for a rental property in Texas, here are the steps you need to take:

1. Make a decision on the name of your LLC. For the Texas Secretary of State to accept the name of your LLC, it must be distinct from any other business registered in Texas.

  • It should also include the abbreviation “LLC” or the phrase “Limited Liability Company.”
  • Using a government agency’s name (FBI, Treasury, State Dept., etc.) or any restricted words or phrases in your LLC’s name is prohibited (bank, attorney, university, etc.)
  • Check to see if the name you’re looking for is already in use in Texas. Find out if the word you’re looking for is already in use by conducting an online search for the word in question.

2. Make sure your LLC has a registered agent. If you need someone to accept legal documents on behalf of your LLC, you’ll need a registered agent.

  • This can be incredibly important if your LLC is sued, as the process server will need to deliver the summons and complaint to your registered agent.
  • To accept service of process, your trustee must have a physical location in Texas and be available at regular business hours.

3. File your Certificate of Formation with the Texas Secretary of State.

  • The Secretary of State’s office must receive a Certificate of Formation before an LLC can be formed in Texas. Often referred to as the Articles of Incorporation, the Certificate of Incorporation is an important document for a new company.
  • Online, mail, or in-person submission of the Certificate of Formation is required to pay the $300 fee.

4. Your LLC needs an operating agreement.

An operating agreement is a document that outlines the ownership and operating procedures of your LLC. Texas law does not require it, but having one in place is a good idea.

Your operating agreement should include information such as the LLC members’ names and addresses, how the LLC will be managed, and what happens if a member wants to leave the LLC.

5. Comply with other business regulations.

You may need to obtain other licenses and permits depending on your business type. For example, if you sell goods or services, you may need a sales tax permit from the Texas Comptroller’s office.

You should also check with your local city and county government offices to see if there are any business regulations that you need to comply with.

6. Open a bank account for your business.

To conduct business, you’ll need a business bank account once you’ve established your LLC and secured all necessary permits and licenses. To safeguard your assets, you’ll want to keep your business finances separate from yours.

When opening your account, bring along your Certificate of Formation and your operating agreement.

7. Start doing business!

You are now ready to start operating your LLC. Congratulations! Be sure to keep good records of all your income and expenses, and consult with an accountant or tax advisor if you have any questions about how to file your taxes.

We hope this guide has been helpful. If you have any further questions about how to form an LLC in Texas, please don’t hesitate to reach out to us. We are always happy to help!

8. Get started on your LLC today!

If you’re ready to get started on your LLC, we can help. We are experienced business formation attorneys who can help you navigate the process of forming your LLC. We can also guide you in complying with all applicable laws and regulations. Contact us today to get started!

What is an LLC?

An LLC, or limited liability company, is a business structure that can provide personal asset protection for its owners. Your assets will be protected if your rental property is sued or faces other legal action.

LLCs are also relatively simple and inexpensive to set up and maintain. And, if you choose to, you can have your LLC taxed as an S corporation, which can provide significant tax benefits.

Benefits of an LLC

If you are looking for a way to protect your rental property investment, forming an LLC may be the right choice for you. Here are some of the benefits of an LLC:

  1. Protection of one’s assets. Your assets will be safe if your LLC is sued.
  2. Limited liability. You will not be held personally liable for the debts and weaknesses of your LLC.
  3. Flexible management structure. You can choose to have a centralized management structure or give each member of your LLC equal decision-making power.
  4. Tax benefits. You may be able to elect to have your LLC taxed as an S corporation, which can provide significant tax benefits.
  5. Simple and inexpensive to set up. LLCs are relatively simple and affordable to set up and maintain compared to other business structures.

Is a Limited Liability Company Necessary to Sell Real Estate?

If selling real estate, you are not required to form an LLC. However, there are several benefits of doing so. For example, an LLC can provide personal asset protection and limited liability for the debts and weaknesses of your business. Additionally, an LLC can offer tax benefits if you elect to have it taxed as an S corporation.

Ultimately, whether or not to form an LLC is up to you and should be based on your specific needs and goals.

How Do You Decide if an LLC Is Right for You?

There are a few factors to consider when deciding whether or not to form an LLC.

First, you need to consider the level of protection you need for your assets. If you have significant investments that you want to protect, an LLC may be a good choice.

Second, you need to consider the tax benefits of an LLC. If you think you will benefit from the tax advantages of an LLC, then it may be worth forming one.

Finally, you need to consider the costs and time involved in establishing and maintaining an LLC. It may be the right choice if you are willing to put in the time and money to form and maintain an LLC.

Regardless of your decision, consult with a qualified lawyer or accountant to ensure that you are taking the best course of action for your specific situation.

What Happens After You Form a Real Estate LLC?

The following steps must be completed after establishing your real estate LLC:

  1. Open a Business Account at a Bank. Separating personal and business finances is made easier with a business bank account. The corporate veil of your LLC must be preserved through this separation (i.e., your limited liability protection).
  2. Transfer your current LLC’s assets to the new entity. Deeds are required for the transfer of property from your sole proprietorship to your new limited liability company. A title company or you can do this on your own. If you need help getting started, we suggest contacting a title company or your local county clerk.
  3. Update Your Lease Agreement. Your residential lease agreement will need to be updated if you transfer an existing rental property into a new LLC.
  4. The Texas LLC Annual Report must be filed. The Texas Comptroller of Public Accounts has a May 15 deadline for submitting financial statements. An LLC does not have to file reports the year it is formed. See our Texas LLC Annual Report guide for more information.
  5. Pay Estimated Taxes. The IRS requires businesses to pay estimated taxes quarterly. This includes LLCs taxed as sole proprietorships (disregarded entities) or partnerships.
  6. File an Annual Report with the Secretary of State. All LLCs in Texas must file an annual report with the Secretary of State’s office.

As you can see, a few steps must be completed after you form your LLC. However, the process is relatively simple and can be quickly met with the help of a qualified lawyer or accountant.

Conclusion

Texas’s rental property owners have several business structures, but the Limited Liability Company (LLC) is often the best choice. LLCs provide personal asset protection, limited liability for debts and weaknesses, and tax benefits. Additionally, LLCs are simple and inexpensive to set up.

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