How to Form a Real Estate Syndication LLC or Corporation

Establishing a business entity, like an LLC or corporation, is not an easy task. If you wish to learn how to form a business entity, you must first be familiar with any federal or state law that will be relevant to your case. Rules and regulations will differ from state to state, which is why it is crucial to seek legal advice from a credible attorney and if you are setting up a syndication, a real estate syndication attorney.

Six steps to forming an LLC or Corporation for real estate Syndication

1. Choosing an appropriate legal structure
2. Deciding a name for the business
3. Selecting a location for your business
4. Working on financing and federal and local taxes
5. Filing required paperwork for business entities
6. Finalizing business entity formation and hiring employees

1. Choosing an Appropriate Legal Structure

Generally, one can set up a business entity as a sole proprietorship, a partnership, a limited liability company (LLC), a corporation, or an S corporation. Before choosing, however, federal taxes and local statutes must be considered. Certain states charge annual fees for specific businesses, and the benefits and consequences could vary depending on the structure of the business. Additionally, your business needs, relevant investor requirements, and your preferred level of liability protection should also be taken into account.

2. Deciding a Name for the Business

For an aspiring business owner, choosing a business name is an important step of the legal process involved. Sole proprietorships and partnerships, for example, would usually use the name of the owner or owner’s name. However, using a fictitious name is also a common practice. A company, meanwhile, can also choose to operate under another name by filing a Doing Business Ads (DBA).

Regardless of the name you choose, it is important to conduct a free online search to make sure that no other business in your county and state and county is already using that name. Checking national records and eventually filing for a federal trademark at the United States Patent and Trademark Office (USPTO) can give you brand protection if such is necessary.

When starting a business, make sure to check your state business name directory. Disputes necessitating legal action may arise from what seems like a simple process of deciding on a name for your LLC or corporation.

3. Selecting a Location for Your Business

If a physical location is necessary, checking state-specific guidelines is crucial before determining where the entity will be established. The location you will choose will have an impact on your sales, so make sure it aligns with your business plan, envisioned policy, and long-term goals. Depending on the chosen location, LLC taxation choices, articles of incorporation, bylaws, additional permits, zoning clearance, or a city business license may be required for your business to push through.

4. Working on Financing and Federal and Local Taxes

To prove that a separate entity exists, accounting of business assets and liabilities must be done separately from the personal accounting of the business owners involved. Setting up a company bank account may also be necessary. 

Part of the many financial considerations that you should work on is the possible need to pay self-employment taxes. Certain forms of revenue that do not come with a paycheck (such as dividends or income from rent or businesses) do not have taxes withheld. Most of the time, taxes must be paid quarterly, in equal payments. Failing to do so on time could lead to hefty fines and penalties, so make sure to check with your state and county.

5. Filing Required Paperwork for Business Entities

After finalizing the above steps, you may file with your state and register your business. Specific business licenses and relevant fees are generally part of the approval requirements. However, some would ask you to have a sales tax number and file annual tax returns as an owner (to report income). The business entity itself may be required to file a tax return or information return every year, so make sure to check with your local state tax commission.

To make sure that you do not miss out on any of these, consult with an experienced lawyer. He or she can answer your legal questions, help in obtaining an Employer Identification Number (EIN) from the Internal Revenue Service, or assist you with an LLC operating agreements or partnership agreements, whichever is applicable.

6. Finalizing Business Entity Formation and Hiring Employees

Before you hire employees, check if an entity number is necessary. A sole proprietorship, for example, need not obtain an EIN since the Social Security number or tax identification number of the owner is used.

Once you have employees, it is necessary to set up payroll services that will withhold tax and regularly send such to the government. Aside from setting up a system to pay them and having payroll taxes withheld, you would also need to look into insurance for employees, possible worker’s compensation, and other forms of liability insurance.

Businesses would also need to decide on the accounting method that will be used, although the accrual method may be required for larger companies.

These are the six major steps that one must take when forming a business entity in real estate. 

If you are forming a syndication, the syndication attorney should set up your LLCs for you as part of their syndication services.

For many of the frequently asked questions about real estate syndication, please visit https://www.moschettilaw.com/real-estate-syndication-faqs/.