Limited liability company
or LLC is one form of organization you can adopt for your rental business. LLC has great advantages for those business that are high-risk.

It sounds interesting, right? But what is limited liability company? LLC is a form of business structure that is a hybrid version of sole proprietorship, partnership and corporation. It can have a little bit of everything. However, the most predominant feature of LLC is the limited liability provision. This what makes this organization attractive to landlords.

Benefits for Landlords

LLC is one thing that a landlord should consider having. It can benefit them in three different ways. Below are some of them:

1. Limited liability

This was already stated above. However, what do limited liability means? This provision protects the personal assets of the owners. If it happened that the owners is unable to pay off their creditors (and whatever liabilities they have) the pay-off can only be up to the extent of the investment made. Creditors cannot demand to be paid by liquidation of their personal assets.

This feature is similar to corporation, as it is a separate entity. However, LLC is not a separate entity. It is a pass-through entity, similar to sole proprietorship and partnership. It just has this one feature of corporation.

2. Related to taxation

Taxation of LLC will depend on the number of members. If there is only one member, taxation would be treated as sole proprietorship. If there are two or more members, it will be equivalent to partnership.

Members can also choose to have a corporate taxation. According to sources, if owners elect this option in filing, they can save a lot of money from paying taxes.

Owners of LLC are usually liable to pay self-employed taxes. However, one advantage they have is that the reportable taxable income can be greatly reduced. As the owner of the rental property, you can claim expenses like advertisement, travel, repair, maintenance and other expenses related to operations as deductions to your taxable income. As a result, your tax payables would also be lessened.

3. Formation of Organization

Landlords, who thinks they are high risk to lawsuits and debt problems, can convert their rental business into LLC. To form a Limited Liability Company, a landlord do not really need a lot of members. Even if there is only one member, the formation can take place just as long as the Articles of Organizations is submitted and the rules set by the state are followed. The business can legally operate just as long as the required fees are paid and the permits needed are obtained.

4. Lifeline of the Business

If one of the member bails out, the business can be terminated as desired.

Any owner of a rental business can select other forms of business structure. However, LLC has great financial benefits. It is also easier to manage. This business do not involve too much paper works or even requires regular board meetings just to make a decision. It is also very much flexible when it comes to taxation. During filing of income tax, owners can even use a check box to decide which taxation scheme will be applied.

Overall, Limited Liability Company has the best of every business structure.

Tags: Finance, Finance Blog, landlord benefits, limited liabilty, llc for landlords, why use llc