Corporate stock refers to a type of ownership in a legal business entity, such as an C-corporation. Corporations typically issue stock to raise money from investors to fund capital expenditures or future growth. Typically corporate stock is broken up into common or preferred stock. Both can be beneficial depending on what the situation is for your business.

If you’re interested in issuing stock to raise money then you should make sure your business is setup as either an S-corporation or a C-corporation. MyCompanyWorks can help you whether you’re a brand new business or you currently have another entity type, like an LLC, that needs to transfer over. You can quickly fill out the online form to get the process rolling today.

What is Corporate Stock & How it Works

Corporate stock is broken up into shares that constitute an ownership interest or equity in a business. Each share represents a proportionate ownership interest in the corporation. Shares of corporate stock can be purchased and sold in two different ways: either via a single private transaction, typically to a single private purchaser, or to many purchasers through a regulated stock exchange. 

Just because someone owns corporate stock doesn’t mean they have any legal obligations to the business itself. However, all financial benefits of stock ownership must be reported to the IRS as income to the individual. If there is a financial event, such as a dividend paid by the company or a sale of the stock of the company, then the shareholders could benefit depending on the legal rights of any debtor’s of the business. 

There is no set number of shares that a business must issue when deciding to sell or give corporate stock. Many businesses will start out with between 1,000 – 100,000 shares of stock that is typically broken up between common stock and preferred stock. Those owning common stock are shareholders that have voting rights based on the number of shares they own. The number of total shares can increase as the business grows.

Why Companies Issue Stock

Generally a business issues stock in order to prepare for a financial event, such as raising money to grow the business or in preparation of taking the company public. Instead of taking on debt financing, like issuing bonds or taking out a loan, a company will issue stock to raise money through what is called equity financing. 

You may want to issue stock for a number of reasons, including: 

1. If you can’t, or don’t want to, take on debt due to cash flow or credit issues.
   
2. If you need more cash available than debt financing would allow.
   
3. If you lack sufficient assets to take on debt financing.
   
4. If you’re planning to grow quickly and can’t afford to be viewed as a risk due to debt. 

However, you may want to consider not issuing stock and selling shares of the business if you’re worried about giving up ownership of your business. In order to get the shares back you’ll need to buy them back in the future, if the shareholder agrees to sell. If you sell too many shares of your business then you could end up struggling to have the power to make big decisions for the business. 

Types of Stock

Typically, all corporate stock is broken up into either common stock or preferred stock. Common stock can provide a larger increase in value if the business grows but preferred stock typically allows for a more consistent dividend.

Common Stock

Common stock is the most popular and widely used type of stock. This is the type of stock that has all of the traditional power of being a business owner. These shares are allowed voting rights and whomever owns the majority of the common stock controls the decisions that are made within the business. Common stock is often believed to be the type of stock ownership with the best return on investment. Shareholders may earn dividends but they vary and are never guaranteed. 

The two types of common stock are: 

1. Common Growth Stock: This is typically the type of stock referred to when someone wants to issue “common stock”. Shareholders owning this type of stock have voting rights and can receive dividends but the most common benefit is the increase in value per share that shareholders can earn from a fast growing company.
   
   
2. Common Income Stock: This is similar to common growth stock but is considered to be a more secure investment. This type of stock is typically issued by well established businesses. Instead of profiting off of the quick growth of the business, shareholders benefit from high dividends. 

Preferred Stock

Preferred stock also represents ownership of the business but typically does not come with any voting rights. Instead, shareholders are just looking to profit off of the growth of the business without having anything to do with the operations. When dividends are paid out on preferred stock then the business typically guarantees a set amount per dividend in perpetuity. For example, as long as the company hits certain financial parameters, each share pays out a dividend of 5% per quarter. 

Convertible Preferred Stock

Convertible preferred stock operates as normal preferred stock with dividends and no voting rights with one big exception. The owner of this type of stock has the right to trade their shares for common stock by a pre-specified date. This is typically a nice balance for someone that needs income in the present day but who still values the long-term investment of a growth stock. 

Corporate Stock Classes

While common and preferred stock are the two main types that are issued, your business can classify stock any way you would like to. Most of the time this means issuing different classes of stock for the sole purpose of breaking up the voting rights. The most common classes are classified as class A and class B stock. 

For example, you could issue class A common stock and class B common stock. Class A could have 100 votes per share and Class B could have 25 votes per share. This enables you to better control who has the decision-making power with the business as you continue to raise equity financing. 

Which Type of Corporate Stock to Issue

The type of stock your business decides to issue is dependent on what your goals are. If you’re looking to raise money and are willing to pay out a consistent dividend then you’ll likely want to issue preferred stock. However, if you don’t want to pay a dividend or want it to be dependant upon company performance then you may want to consider common stock instead. 

The key thing to keep in mind is that regardless of your strategy or the types of stock you issue there are ways to make sure you keep the controlling interest in the business. You just need to make sure you break up the stock into different classes or only issue the controlling number of common stock shares to yourself. 

How to Issue Stock

If you’re looking to issue stock then you should follow a number of steps to make sure you do it correctly. The key here is that you don’t want to do this on your own. You should consult the proper attorneys that will enable you to legally issue the type of stock that will benefit your needs. 

Here’s six steps you can follow as you look to issue corporate stock: 

1. Form a Corporation: In order to issue stock you’ll want to be either an S-corporation or a C-corporation. You can get started here.
   
   
2. Determine Your Funding Needs: Before issuing stock you should know how much capital you’re looking to raise so that you and your advisors can properly strategize what you need to do. This amount will guide the entire process.
   
   
3. Determine How Many Shares You Can Issue: Before you can issue any corporate stock you need to  know how many shares to start with. The articles of incorporation within your corporation’s registration will provide a maximum number of shares but you do not have to issue all of those shares at one time.
   
   
4. Get Your Business Valued: Getting a business valuation will help you determine the value of each share of stock so you can properly sell the shares.
   
   
5. Determine the Type and Class of All Shares: This is where you work with your advisors to make sure you’re issuing the right types of corporate stock that will help you achieve your business goals.
   
   
6. Check All Securities Laws: Work with an attorney to make sure you’re in compliance with all securities laws. 

Each of these steps requires careful consideration of both the laws and your business’s goals. While issuing corporate stock can be very beneficial to the short-term gains of your business, you may regret issuing stock down the road if you don’t do it correctly. You should also consider alternatives to issuing stock before jumping in and doing it, such as taking out a loan. 

Getting Started

Issuing corporate stock can be a complicated process, but it can help you raise the capital you need to achieve your lofty growth goals. The first step is to make sure your business’s legal entity is a corporation. You can get the process started by filling out a simple online form.

Below is an excerpt from Part One of our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here.  

When I talk about Energy as it relates to startups, I’m giving it a broad definition to include not only your physical health but also your mental health and things like perseverance, the mental toughness required to get you through the rough spots of being an entrepreneur.

Superpower #1: Health

“The first wealth is health.” – Ralph Waldo Emerson

Say there are two founders that have the exact same set of skills and knowledge but one is healthier than the other. Nine times out of ten, the healthier founder will outperform the other. Healthy founders simply have more mental and physical energy to bring to bear on the various issues that a startup encounters, not to mention they will be sick less and able to bounce back faster from setbacks. You want to prioritize your health and energy first, which will allow you to be more effective in almost every aspect of your life. 

It’s critical that the founder not make the mistake of overworking and ignoring their physical health. Trust me on this. It’s almost a badge of honor how much founders work, but I’m of the belief that founder who works 40 hours a week but is well-rested, “clocks out” at night, takes proper vacations (even if just a 3-day “staycation” around the house), eats healthy, and most importantly, sleeps well, will easily outperform a neurotic founder who works 60 hours a week but doesn’t do these things. There’s much more on this in later chapters. 

Remember: It’s not selfish to focus on your health. It’s actually moral and responsible for you to make sure you’re healthy enough to make sure your company survives and thrives, especially when others are counting on you. 

Mental Health 

Taking care of your mental health is as critical as your physical health (perhaps more). One thing I’ve noticed is how many of the “rock star” entrepreneurs and successful people I admire have worked on their mental game as much as their physical game. 

In the book Tribe of Mentors by Tim Ferriss, nearly 80% of the successful people he interviewed have some form of meditation or relaxation practice. Arnold Schwarzenegger and billionaire hedge fund manager Ray Dalio have credited mindfulness meditation for much of their success. Being able to calm your mind is an incredibly valuable skill and has been a game changer for me personally. I list resources on this in the Chapter Resources. 

Another aspect of mental health that affects a lot of founders is “imposter syndrome.” Imposter syndrome is very common among many high-performing people, and is where you feel like a fraud, feel that you don’t know what you’re doing, and fear that you’ll be exposed as a fake. 

Trust me, this is very common and comes from the fact that you’re usually pushing yourself to learn new things as you grow your skills. Life and business never provides 100% certainty. When I learned that many world-changing geniuses and entrepreneurs also felt like this, it was an enormous relief. 

One interesting thing is that pretty much nobody fully knows what they’re doing, and while that might be terrifying (my first thought: what about pilots!), it’s actually pretty relieving. By the way, pilots have lots of training and sophisticated help via a backup pilot, air traffic controllers, weather, and flight software, so as we discuss later, having systems and a team you trust will help in your startup journey. 

A lot has also been written recently about loneliness and depression among founders. I’d be lying if I said that these things have never affected me or founders I know. If you’re a founder, you’re probably going to encounter times where you feel absolutely alone and nobody else really understands or cares, even your best friends and family. It’s not that they don’t want to help; it’s that they likely can’t possibly understand your specific situation at this time, and that’s totally normal.

Connecting with other founders locally and online is a great way to overcome loneliness. There are now so many communities, organizations, Facebook groups, Twitter personalities, and more that the “startup ecosystem” is now very big and supportive. In the resources section of this chapter, I list some great resources for connecting with fellow founders that can make this journey easier. Actually, one of the reasons I’ve structured this book in such a systematic manner is to overcome a major reason for depression: being overwhelmed and not knowing what to do next.

Hopefully, by breaking down this process into bite-size chunks, we can take some of the overwhelm out of the process. Taking care of your physical health is a big part of fighting depression. Finally, never be ashamed to admit you’re depressed to your doctor, friends and family, and get the help you need. 

This was an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here or see our previous excerpts here.

One of the most popular ways to protect businesses from potential legal liability is to use multiple business incorporations. This typically entails a business putting assets in different LLC’s or corporations. The biggest benefit to business owners is that if you have a big mess up, or financial loss, in one part of your business it doesn’t have to impact all of your assets. 

How Multiple Business Entity Strategies Work

A multiple business entity strategy typically includes two different types of entities. The first is an operating company and the second is a holding company. The operating company as access to, and typically possession of, the assets but doesn’t have ownership of them. The holding company owns the assets but does nothing else. 

This is beneficial because if the operating company takes on legal liability during the course of their operations, it is very difficult for anyone to get access to the assets the holding company owns. So the business can continue to operate after surviving a lawsuit since the assets are protected because the operating company takes all the risk. 

For example, retailers use this multiple business entity strategy on a per location basis. This is often done by retailers to protect each physical location as its own business, with its own assets. So if one location has a massive slip and fall lawsuit, the results are limited to an impact on that individual entity.

It’s important to make sure that your holding company doesn’t actually do any business outside of creating and funding any needed operating companies. If the holding company starts doing day to day operation activities then the corporate veil can be pierced, causing the holding company to be liable for many wrongdoings. 

If the operating company needs to purchase additional assets after operations have begun, the holding company can act as a lender in order to fund the activity. This should be done with a lien that runs back to the holding company to show the loan, and paid back in the same manner any other business loan would be. This is done so that it doesn’t look like the holding company is responsible for operating activities. 

How to Create a Multiple Business Entity Strategy

The first thing you need to do is to create a holding company. This can be an LLC or a corporation (but not an S-Corporation which is not able to own or be owned by other entities), depending on your personal situation. After consulting with your attorney and/or accountant, you should create and fund your holding company. We recommend using an industry expert to get your business incorporated.

Once the holding company is created then that company should create and fund the operating company, as needed. This way the operating company is directly owned by the holding company so that the holding company can maintain the most important assets. 

This also gives the business owner the added personal protection from any potential debts the business way accumulate. With the holding company funding the operating company, there won’t be any personal guarantees on any debt that is required. This is a huge benefit to owners looking to create and fund businesses without wanting to personally take on debt. 

A Common Legal Mistake With Multiple Businesses

One common mistake that many businesses make is that they only consider the tax consequences of how to set up their businesses. There can be a nice tax advantage in creating a single LLC and then registering different DBA’s (doing business as) instead of creating a unique legal entity for each one. The problem with this is that you don’t get the same legal protections so if one struggles then you could be risking the assets of all the others. 

Assets the Holding Company Should Own

The most basic answer to the question on what assets the holding company should own is that it should own all of the important ones. If you have something you don’t want to lose if everything were to go wrong, then those things should be owned by the holding company. Below is a list of things that you should consider the ownership for. 

1. Real Estate – Office buildings, investment properties, or land. 
2. Proprietary Software – Software you currently sell, or would like to in the future.
3. Patents – Patents for any product you’ve established can be leased to the operating company. 
4. Websites – If the websites are vital to the process or existence of your operating business. 
5. Trade Secrets – Anything that may give your business a competitive advantage and be considered an asset. 
6. Trademarks – You don’t want to have to rebrand your business if your operating company loses the ownership rights to a valuable name. 
7. Any asset that doesn’t have to be owned by the operating company

Thinking about the legal structure when you’re setting up the company assets could save you a lot of unnecessary headaches later. The key thing to remember is that even if the operating company needs an asset in their day-to-day work, it doesn’t mean that entity has to own it. you can always set up the holding company on a consulting or leasing basis to provide the other entities for what is needed. 

Who Should Use a Multiple Business Entity Strategy

A multiple business strategy is typically right for entrepreneurs or businesses with assets from multiple operations. While this isn’t an all-inclusive list, there are a few specific types of situations that will find this strategy to be helpful. Those who should consider using a multiple business entity strategy include: 

• Serial Entrepreneurs: Chances are if you like to start businesses pretty regularly then you’ll have a holding company to house your ownership in each of the businesses. As a serial entrepreneur, most of your businesses likely won’t have anything to do with one another so it wouldn’t make much sense to house them all together. This strategy is a natural fit with this situation.
  
  
• Businesses That Own Real Estate: Regardless of what your core operation might be, owning real estate is a nice way asset to have to secure the future of your business. If something were to go wrong, you wouldn’t want to lose the real estate that has grown in value since you purchased it. Instead, keeping the asset in a holding company and leasing back necessary space to the operating company is a much safer strategy to protect your real estate as the value continues to increase.
  
  
• Businesses Selling a Proprietary Asset: Many businesses are only operating in order to sell something that they’ve created. These days, that routinely means a piece of software that they’ve developed. Keeping the ownership of the software, or other asset, in the holding company instead of the operating company can mean better overall protection and decision making since you know that your most important asset isn’t at risk. Sadly, many businesses have lost those assets during rough times because it was the only asset the operating company could monetize to pay off creditors.
  
  
• Businesses Wanting to Start a New Product or Service: Sometimes businesses decide that their customers have a need that isn’t being met by anyone else. This can result in a new product or service offering. For example, a software company that decides they can adequately consult with the same customers they currently target. These businesses should separate the two operations, as they are different businesses. This is a good operational strategy and a good legal strategy.
  
  

These are the most common instances where you’d want to use this multiple business entity strategy, however there are more. You should consult with a lawyer to know how your legal setup will impact your business strategy going forward. 

Multiple Business Entity Frequently Asked Questions (FAQs)

The multiple business entity strategy can be complicated but if you’re planning on owning multiple types of assets or businesses then it is a vital one to adopt. We’ve put together a few of the most common questions to help you better understand the process so that you can better use it to protect your assets. 

What’s the primary purpose of a multiple business entity strategy?

Asset protection. If you own assets then you want to have a holding company that has no liabilities other than to you personally, and that has no direct interaction with customers of your operating company. 

How many LLCs are too many? 

There isn’t a limit to this legally, but you should use as many as you can operationally and financially manage. We’ve seen retail businesses use an LLC for every single one of their hundreds of locations because that’s what makes the most since for them. 

Can I use this strategy to protect my personal assets? 

Kind of. You can use something very similarly personally where you put your personal assets into LLC businesses to protect yourself, but this strategy is designed to protect business assets more than personal ones. 

How does my operating company get access to needed assets in my holding company?

The holding company can lease assets to the operating company so that proper access to run the business is established. For example, if your holding company owns your office building then the operating company can rent out the space. 

Getting Started

Now that you can see how important it is to protect your assets from any potential liabilities, you can start the process today by either starting your LLC or corporation from scratch or by adding a second entity to make the strategy work. Either way, you should use a business you can trust to get these set up. Use the source over 60,000 other businesses have used and follow our simple three step process today.

You’ve probably searched for online small business ideas because you want at least one of three things: freedom of time, money, or control. 

And if you’re reading this, you’ve probably read a bunch of listicles that throw 36,000 business ideas at you: 

Be a virtual assistant! A babysitter! An Uber driver!

You also probably closed those tabs in frustration because none of them consider the #1 one thing that will make a business succeed: You.

What you actually want to do. Your skills. Your passions.

In this post, I don’t throw 100 business ideas at you because… I don’t know you! Instead, I’ll show you a list of brainstorming questions to generate 100 business ideas that are actually realistic for you to do.

• I provide a high-level framework of what makes a profitable small business idea to get you started
• I show you two overlooked sources that you can mine ideas from, and 
• I take you step-by-step to generate over 100 viable business ideas so you can pick from a list of ideas that actually get you excited

Let’s get into it.

What Makes a Profitable Small Business Idea?

An amazing online small business idea is made of two simple, but important ingredients:

1. A group of 1,000 true fans who can support your work a.k.a. a niche
2. A profitable product or service with skills and knowledge you have that delivers a solution to solve their problems

Let’s break that down:

Ingredient #1: A Group of 1,000 True Fans

The best way to make a million dollars is to serve one million people. Kevin Kelly’s article on 1,000 true fans brings that quote into sharper focus:

If you generate enough value to get 1,000 people to pay you $100 every year, then you have a $100,000/year business.

Once you serve the needs of the initial 1,000 true fans, then you can expand outwards to groups that are adjacent to your initial group.

For example, if you help 10,000 people with $100 worth of products and services and you can gross $1,000,000/ year.

Ingredient #2: A Solution that Solves a Real Problem

The essential principle of business—of occupation in the world—is this: figure out some way in which you get paid for playing.” — Alan Watts

Too many failed entrepreneurs are marketing-driven. They create a product first, then find a problem that that product can solve and customers to sell to. They believe that if they build it, the customers will come. Or that they can just pour more money to sell a below-average product.

Successful entrepreneurs are market-driven. They let their fans tell them how they can help. They validate their product and survey their potential customers for their willingness to put down money for a product before they go out and make it.

Successful entrepreneurs let the market tell them what to make and release to excited customers who line up before the store opens. Failed entrepreneurs tell the market what they want to make and release to crickets.

The Two Overlooked Sources of Online Business Startup Ideas

Source #1: Building a Business on Your Existing Skills

When people search for “business ideas”, they overlook an important source of those ideas: Themselves.

Their obsessions, passions, and strengths.

To help you mine your existing skills for business ideas, here are some brainstorming questions:

• What am I already getting paid to do at my day job?
• What do people usually come to me for help with?
• What comes easy for me that other people struggle with?
• What is an accomplishment or interest my friends get excited about when I tell them about it?

If you want to learn more about how to apply an entrepreneurial mindset to your current skillset. I recommend Michael Gerber’s book, The E-Myth: Why Most Small Businesses Don’t Work and What to Do About It (amazon.com).

Source #2: Buy a Franchise or an Existing Business

Another source that many people overlook when looking for business ideas are proven profitable businesses. 

Investing in an already-profitable business takes away a lot of the setup stress of running an early-stage startup and figuring out a business model. All you have to do, really, is ask how much you really like the business:

• Would I like to do this for several years?
• Am I good at this?
• Is there a proven need for this?
• Would I use this product or service myself?

Bonus points if you’re already a fan of the brand, the business model generates recurring revenue, or if the business is a big player in a growing market!

With these two sources in mind, here’s a step-by-step plan you can follow to get find your small business idea:

A Step-by-Step Guide to Getting the Best Online Small Business Ideas

1. Know Your Why, Your What, and Your Passion

Prime your brain by having a vision, a driving force behind why you want to start an online business. Ask yourself…

What activities give meaning and purpose to your life?

• Is it so that your wife doesn’t have to go to work? (Admiration)
• Is it to be able to help build a school with the charity of your choice? (Contribution)
• Is it so that you can work and travel from wherever you want in the world regardless of what a boss says? (Freedom)

What does your perfect business look like?

• What does it look like?
• What does your perfect business look like?
• What is your endgame?
• How much money do you want to make per year?

You also have to know what you want and don’t want:

• Maybe you don’t want to work with a team and want to be a solopreneur
• Maybe you want a business that runs itself and only requires <5 hours a week of management
• Maybe you don’t want your name on anything because you want to sell the brand for hundreds of thousands or millions of dollars down the road

Whatever your why’s and your what’s are, clarify them and write them down. Remember, a goal not written down is merely a wish!

2. Figure Out What Unique Value You Bring to the Table

Once you know why, how, and what you’re trying to accomplish with your online business idea, the next step is to find an idea that you can do. 

To start, ask yourself:

• What do I like to do?
• What am I good at?
• What is an urgent unmet need or “pain in the ass” (PITA) that I or others I know have?
• What product or service do I gladly spend ungodly amounts of money on?
• Is there something complex in my life that I wish was simpler?
• Am I already good at something that might be a business? What comes easy to me?
• What would I do if I already had $1 billion?
• What do I obsess over on my evenings and weekends?

These questions will help you figure out your passions, strengths, and skills. The intersection of these three things is where your best business ideas lie. These are the possible niches you could create a business in. 

For example, maybe you like to go to tea shops whenever you visit a new city (passion). You also realize that your health-conscious friends have started asking you for tea recommendations beyond the usual Earl Grey and English Breakfast teas they have (strength). Maybe you could start a tea recommendation newsletter for fitness enthusiasts… And eventually, turn that into a monthly subscription box of herbal tea (profitability).

3. Stay on Top of Business Trends and New Markets

Once you know what you want and have an idea of what you can do, it’s time to look at what’s succeeding already to expand your knowledge of what’s possible.

• Read case studies and blogs (Shopify’s blog is an excellent place to start)
• Listen to podcasts that profile entrepreneurs, like NPR’s How We Built This
• Watch documentaries or movies of legendary businesses, like Netflix’s documentary about McDonald’s Ray Kroc
• Check out best-of lists, like INC.’s 5000 Fastest Growing Companies and Entrepreneur Magazine’s Top 500 Franchises
• Notice your everyday life: What restaurants and cuisines are suddenly popping up in your area? What new kind of espresso is becoming popular? What stores and new apps are your friends talking about?

Take as much time as you need for this stage. This is how you prime your brain for the final step of getting the best business ideas.

4. Generate Business Ideas and Filter Through Them

Once you’ve told your brain what you want, it’s time to let it get to work.

For the next 10 days, sit down each morning with a pen and paper. Push yourself to list out 10 business ideas. 

By the end of the 10 days, you’ll have 100 unique business ideas on your hands. 

They don’t have to be good ones. In fact, your first 90 ideas will probably suck. That’s OK. You just have to list out 10 ideas a day for 10 days.

Once those 100 ideas are in front of you, run each one through these filtering questions:

• Are there 1,000 — 3,000 reachable (preferably online) folks who can and will pay for this?
• Does the product have high margins? Better yet, can I make this once and sell it again and again, like a digital product or course?
• Does this product have the opportunity for recurring revenue, like a health supplement or email service provider?
• Does this product take advantage of status and network effects? In other words, does the product encourage customers to talk to their friends about it because it raises their status in some way?
• Are potential customers excited when I tell them about it?
• Would I use this product myself?
• Would I like to do this for several years?

If you run an idea through these filters and it passes with flying courses, congratulations! You have a product or service that people will want to put down money for. And, more importantly, you’ll have a potential business that will help you achieve independence and freedom of time, money, and control.

Finding an Online Small Business Idea Quickly

If you don’t want to go through the entire exercise and want to skip ahead, here’s what you do: think of 10 interests that you obsess over when you’re not working. It could be…

• Stock car racing
• High fidelity audio equipment
• Scrapbooking
• Photography
• Leather goods crafts
• Acting
• Coffee
• Photography bags
• Drones

..Whatever it is, start with that interest. Dig into communities that are passionate about that. Get involved in the community, whether it’s on Twitter, YouTube, Reddit, or Facebook. Remember: niches!

Finally, learn how you can solve recurring problems that people are talking about — this is the problem part.

This quick method won’t give you as many options as the step-by-step method. If you want more on where you can find business startup ideas, be sure to check out this post on finding business ideas.

Transferring real property, or other assets, into an LLC or corporation can help you protect yourself from personal liability. This is typically done with property you anticipate having another party involved with in some way, such as a rental property. Transferring property can help protect you from personal legal liability.

The process for transferring property to your LLC is similar to selling your property to a another party. You’ll just need to completely transfer ownership to the corporation instead of an individual, like in the event of a sale. It’s a simple three step process that we detail below.

Step 1: Form an LLC or Corporation

You can’t transfer your real estate property, or any other personal property, into your LLC or corporation until you’ve actually formed a new legal entity. This can be a complicated process if you’re not familiar with the proper documentation or if you’re not up to speed with your state’s rules and regulations. Typically you’ll need to register a business name and file the LLC or corporation paperwork with your secretary of state’s office.

NOTE: For the remainder of this article, when we refer to an LLC, the same concept applies to a corporation.

If you haven’t completed this process before then you’ll want someone familiar with the formation documents involved, especially if you have any partners or other members of your LLC. You don’t want to lose any of your own rights to the property because you weren’t sure how to structure the LLC or what basic clauses you needed in your partnership paperwork.

Using an experienced company,like ours that has completed 60,000+ business formations, is important to make sure you’re completing the LLC formation process correctly. Getting an LLC formed and filed isn’t necessarily difficult but it does require a certain level of expertise to make sure nothing is missed that could hurt you or your business later.

Step 2: Complete a Quitclaim Deed

At this point you may want to consult with an attorney to make sure you complete the right deed for your personal property transfer. If you’re transferring real property than most of the time you’ll want a quitclaim deed that shows this transfer of ownership. When executed, a quitclaim deed transfers any interest the grantor has in the property to a grantee. In this case, you will be the grantor and your LLC or corporation will be the grantee.

There may be certain laws surrounding compensation for the transfer in your state, which is another reason you may want to consult an attorney. The laws would be what compensation is required when transferring property from one party to another. There also could be a transfer tax, depending on your state, if there is no compensation paid from the LLC for the property.

Step 3: Record Your Quitclaim Deed

In order to receive full legal protection for your personal assets when you transfer the property to your LLC you’ll need to record the deed at your local city or county clerk’s office. This recording creates a public record of the property transferring from you to the LLC, so the world is put on notice that you no longer own it and can’t be held responsible for anything that happens with it.

Recording the deed requires either going down to your local clerk’s office or mailing the paperwork, depending on the rules of your state, and then paying a nominal fee. This is an important step that must be done because otherwise there is no notice to third-parties that may have a legal dispute with the owner of the property in the future, which is a legal requirement to pass legal liability to a new owner.

Other Steps to Take When Transferring Property to Your LLC or Corporation

While the required steps to transfer property to an LLC don’t make for a long list, there may be more things you need to consider and take care of that depend on your situation. Not every single person looking to transfer property to a legal entity will need to complete these tasks, but they should be understood to make sure they aren’t a necessary step for your process.

Additional steps you should keep in mind if you decide to transfer personal assets to an LLC include:

1. Change Any Property Leases: If your property is being rented out, and you’re already under contract with a tenant, then you need to make sure you change all legal documents and leases to note who now owns the property (the LLC). In fact, you may want to just get brand new leases signed that are in the name of your LLC instead of yourself.
   
   
2. Notify Your Lender: If you have a mortgage on the property then it is likely that you have some language in your agreement that stipulates a requirement of you notifying them when ownership changes. This could cause a rate increase, but you always want to make sure you’re being compliant with previous agreements.
   
   
3. Obtain a Tax ID Number: You may not have to obtain a tax id number, but chances are that if you’re wanting to move property into an LLC then you’re likely doing something that requires this to happen. If your LLC has more than one owner, if you have employees, or if you meet other requirements that vary by state then you’ll need to get this tax ID number when you create your LLC.
   
   
4. Open a Business Bank Account: Opening a business bank account will help you further separate your personal assets from the assets in your LLC. If you move personal assets into an LLC to protect yourself legally then you won’t want to put that at risk by mingling your personal and business funds into a single account. Instead, open a business bank account to keep it all separate and keep your other personal assets safe from anything that happens with the LLC.

Pros & Cons of Moving Property Into an LLC

There are things you need to keep in mind when you decide to transfer personal assets to an LLC. For example, your actions may result in certain tax consequences, which we’ll summarize below. While the legal protections are nice, it’s also important to note that you may end up hurting yourself financially if you decide to transfer a property you currently have a mortgage on. We detail the most important pros and cons of transferring personal property into an LLC below.

Pros of Moving Property Into an LLC

The pros for moving property into an LLC include:

• Personal Liability Protection: If you’re dealing with another party with your property, like having a renter, then it makes a lot of sense to use an LLC or corporation to shield your personal assets from anything that may happen with the property. This way if there is a lawsuit later over an event on the property, like an accident, then no one will hopefully be able to come after your personal assets, like your personal home, for damages.
  
  
• Protect Your Property From Your Property: If you have multiple properties that you’re renting out then it is a benefit to keep each one in a separate LLC or corporation in order to shield each one from potential liability of the others.
  
  
• Tas Advantages: There can be certain tax advantages to owning real property in an LLC and running any money making activities with that property as a business. This is something you should consult a CPA on to determine what could be the most beneficial to you.
  
  
• Better Defines Partnerships: If the property you’re moving is jointly owned by more than just yourself, then moving it to a multi-member LLC or corporation is beneficial. Not only can there be tax benefits this way but it also clearly defines the ownership and management responsibilities within the legal entity. This makes your partnership much more clean and easy to navigate, especially if anything goes south later.

Cons of Moving Property Into an LLC

The cons of moving property into an LLC include:

• Tax Consequences: While there can be certain tax benefits, there can also be certain tax consequences of moving property. You may incur a delayed tax consequence or if multiple people own the property then you could trigger a tax event for someone else. Make sure you speak with a CPA to fully understand how this could help or hurt you from a tax standpoint, and consult with any partners to make sure it works for them.
  
  
• Mortgage Rates Could Increase: Many owners of rental property will get a good rate on their mortgage by purchasing the property as an individual. If you later transfer the ownership over to a business, then you would likely no longer qualify for the much lower rates your lending institution gives to individuals. You probably have a legal obligation to share this transfer to your lender, but when they find out it could cost you a lot of money by your rate being increased.
  
  
• Insurance Costs Could Rise: One thing that many people don’t consider when transferring property to an LLC or corporation is insurance. If the ownership of your property changes to a business then your insurance carrier could make you change any current personal insurance policy to a commercial policy. These commercial policies typically have much higher premiums, because of the nature of businesses to litigate more frequently than individuals.

Getting Started

As we mentioned above, the first step to transferring property to an LLC or Corporation is to register your LLC or corporation. You can do this today by letting us help. It’s a simple three step process where you select your company type and state, you fill out a simple online form, and we send you back all of your paperwork. Get started today so you can realize the legal protection of an LLC with your property!