A limited liability company protects individual owners of a business or other assets from personal liability for actions by the company. It is sort of a combination of a corporation and a partnership, with one owner or many and usually a designated operating officer or manager. LLCs are set up under state laws, which vary, by agreement of the owners, called members. The articles of organization and operating agreement -- called formation documents -- spell out the purpose of the LLC and define what it can or cannot do. Once created, an LLC can buy, hold or manage any assets defined in the formation documents, including land.
An LLC is exempt from corporate income taxes and passes all income or profit through the LLC directly to its members. Income from land owned by an LLC can be divided equally or apportioned according to the percentage of investment by each member. The LLC also can re-invest that money in additional land. The LLC's powers derive from its formation documents, as limited by state law.
Rights Like a Person
An LLC has the same legal rights as a person, in most cases, so it can borrow money to buy or improve land, so long as its agreements allow that. Many lenders prefer to deal with an LLC, especially on commercial land ventures or real estate investments, because it simplifies loan arrangements with multiple investors and affords some legal protection from claims against the property.
Read More: LLC Member Rights
Real estate taxes, insurance and other financial obligations of land ownership are assumed by the LLC, not the individual members. An LLC can buy land, lease it to others or resell it, so long as the transaction is within limits set out in the formation documents and state law. Most states impose fees or taxes on an LLC for annual reporting or registration in addition to upfront fees for filing the articles of organization, registering a foreign LLC in the state and filing articles of merger.
LLCs protect individual owners or members from personal liability lawsuits, from accidents or other events, or from seizure of personal assets in case of a loan default. Most LLCs set up for land ownership are set up to own only a single piece of land. A separate LLC for each property prevents a liability from any one piece of land from affecting the income or ownership of other properties, even if the investors in each LLC are the same. The LLC, not its members, is liable for any payments or judgments.
- Juris: How to Hold Property in an LLC
- Bankrate.com: Protect Real Estate Investments With an LLC
- Investment Property Expert: Best Investment Property Holding Entity is the LLC
- NOLO: The LLC Operating Agreement
- NuWire Investor: Ownership Through Limited Liability Companies
- Professor Bainbridge: The Corporation is a Legal Person
- Michigan Agriculture Law: Should You Convert Your Land Partnership to an LLC?