Why does The SMARTCAP Group invest through LLCs? An LLC is a Limited Liability Corporation that has the benefits of a corporation, as well as a partnership or sole proprietorship. An LLC provides limited liability in addition to tax efficiencies and operational flexibility.
Every syndication we create is separate LLCs. Each of our syndicated investors becomes a prorated shareowner of that LLC. Then that LLC is the single owner of a commercial real estate property.
We choose the LLC as a entity type for the following reasons;
What general reasons make LLCs attractive entities?
Limited liability is the most obvious component- this means that all owners (like shareholders) are limited to the liability and debts that the company may go through. So if the company suffers the investor’s personal assets will be protected.
Going with the operational flexibility, LLC’s are not required to have annual/semi-annual/or quarterly meetings, so paperwork is easy. This will bring down the cost of running a company compared to other structures.
Taxation- there is no double-taxation is LLC’s. Tax obligations are passed down to the investors to be included on their personal tax filings.
Why is an LLC the best choice for a real estate holding company?
There are many risks that can be associated with investing in real estate such as bad tenants, the devaluation of a property you purchased, or even lawsuits. Having an LLC will make sure that anything that happens to the company does not affect your personal assets, such as your house, or other investments you may have.
If the company chooses to only have one property investment with one LLC, this can safeguard your other investments. For example, if a real estate company is created by a group of individuals and they create a separate LLC with another investment if you own shares in both LLC’s and one goes bankrupt, you will still be able to keep your other investment.