Corporate bylaws are the legal rules a corporation is operated by after the business if formed. Once the organization has a legal entity that has been filed with its state, the board of directors will typically decide on the bylaws which the company will live by going forward. Some examples of bylaws include listing a registered agent and defining the classes of stock for company ownership. To see what bylaws look like, you can see Microsoft’s at this link.

One of the main reasons LLCs became so popular for small businesses is that bylaws and other corporation complexities are not required. Instead, the business creates an operating agreement at the time the legal entity is formed. Many states don’t even require an operating agreement for an LLC to be formed and start operating. If you’re interested in forming an LLC you can learn more about your state’s requirements by checking out are State Startup Guides.

Why You Need Corporate Bylaws

Bylaws help ensure that your corporation runs smoothly. These rules outline the internal rules of your business, from a legal standpoint. The bylaws outline how decisions are legally made, who gets to vote, and the structure of how it works. If your business is very large, or you plan for it to be, then this will be helpful to make sure there’s organization to the chaos of both making big decisions and having a large ownership structure. 

The bylaws are important for all corporations to have, especially if you end up becoming a publicly traded one. This is because the bylaws outline how the official books are to be kept and what the reporting timeline looks like. Anyone wanting to invest in your business will want strict rules around how they’ll be able to keep up to date with what’s happening inside the organization’s performance. 

The bylaws also outline how the stock of the company is going to be divided up. It’s important for any business that plans to sell stock or take on investment money in the future to have a strategy behind the various classes of stock and how those stocks are transferred between owners. There also needs to be set rules around qualifying stockholders and knowing exactly who has a right to make business decisions and who doesn’t. 

However, the main reason you’ll create bylaws when you’re still a smaller company is because it’s required for all corporations to do so. What many small business owners don’t know is that you can start out as an LLC, which has more relaxed rules, and then as you start to grow you can switch to a corporation later. If you’re unsure of what the success of your business might be then this might be your best bet. 

Note: As of the date of publication, the only states that require your LLC to create an operating agreement are Delaware, New York, Maine, California, and Missouri. 

Example of the Benefits of Bylaws

All states have rules around how businesses are meant to operate and interact. If you’re not required to create bylaws, or an operating agreement for LLCs, you might still want to in order to counteract some rules in your state.

For example, some states might have a default rule that all profits are evenly distributed or that the legal responsibility for a company’s actions is evenly distributed among shareholders. In many cases you can actually get around these rules by having very strict bylaws that says the profits or legal responsibility is broken down much differently than the state’s rule. 

How Corporate Bylaws Work

Bylaws are pretty straightforward, like most legal contracts. The bylaws are not registered with your other incorporation documents that you provide to your state, but they can be equally important to operating your business. While you don’t legally file the bylaws with your state, it doesn’t make them any less enforceable. The bylaws are binding as soon as a majority of the board of directors votes them into action. 

The size of your corporation’s bylaws will heavily depend on the size of your business. You may want more relaxed bylaws early on and then you may want to enact more strict rules right before you take the company public. Things like the number of directors the business has will also have a necessity to change as time goes on and you grow in both revenue and employee count. 

Typically whatever the bylaws say is the law for your business. Legal entities typically have the right to operate internally in anyway that the majority of shareholders agree to. This means that while you’re legally bound to your bylaws, you have a lot of flexibility in how you can setup your business to operate the way you need. 

How Corporate Bylaws are Created

The creation of bylaws is simple from a legal standpoint. All you have to do is draft them and get a majority of the board of directors to vote “yes” on enacting the document. There aren’t a lot of rules that restrict you on the actual creation of your bylaws in terms of what can be included in them, but there are many common things that you should include to make the legal operation of your business clear and concise. 

Common Corporate Bylaws

Some of the most common corporate bylaws include:

• Your Business Management Structure: How many Directors will your business have? Who has the legal authority to make binding decisions for the business? Who is ultimately responsible for legal or tax filings and who is the contact person or group for your business?
  
• Your Business’s Registered Agent: If your business is going to receive legal notices or documents in the future then they will be sent to your registered agent. It’s important to keep this part of your bylaws up to date so that you don’t miss an important legal notice. Whomever you have in your official bylaws is the only person or group that has to be contacted for notice to be given to you.
  
• Classes of Stock: How much stock do you have in the business initially, what classes are there, and what are the rights and privileges of those classes? This is extremely important if you’re bringing on outside capital or going public.
  
• Voting Rights: This should be called out specifically so it is clear who has the legal opportunity to weigh in on big business decisions, like taking on outside capital or selling the business.
  
• How the Business Can Be Dissolved: This is important to include so that the only ways to dissolve the business are clear to everyone, regardless of any state statutes.
  
• Corporate Meeting Information: How often do the directors meet and what is the purpose of those meetings? Are these meetings the only time that big decisions can be made and if so, can the board of directors call a special meeting to vote on something important? How do you give notice of meetings to directors? These are all important things to spell out so that there is no internal legal dispute amongst shareholders.
  
• Dividends: If the shareholders have a right to dividends then it should be spelled out in the bylaws on when they might receive one and how it would be dispersed.
  
• Amendments: Any specificity you can provide on how amendments to the bylaws are enacted in the future will be important to make sure it’s clear how things can adapt and change over time. 

This list isn’t all-inclusive for every business. If you need complex bylaws, you should partner with a lawyer that is experienced in setting up businesses and enacting bylaws for many different types of businesses. 

Does My Business Need Corporate Bylaws? 

The real answer to whether or not your business needs bylaws is that it really depends. If you’re starting a corporation then you’ll need to draft a set of bylaws. However, if you’re a smaller business or unsure of what direction you want to take your new business, then you may benefit from starting out as an LLC, which means you won’t need corporate bylaws. We do recommend that you still craft an operating agreement, even if it’s not required in your state, especially if your business has more than one owner. 

Getting Started With Corporate Bylaws

Whether you’re getting started with your corporation and need to enact specific bylaws for your business, or you instead want your legal entity to be an LLC, we can help. My Company Works has completed over 60,000 legal business formations and our packages include an Operating Agreement (for LLCs) and Bylaws (for a corporation).

Opening a business bank account is a simple four step process that can typically be completed in less than an hour, if you have prepared beforehand. You can open a business bank account either online or in-person, but doing so online will typically take longer and could require additional documentation. 

Before you open a business bank account you’ll need to provide an employer federal tax identification (FEIN or EIN) and your legal registration documentation. If you haven’t yet incorporated your business, MyCompanyWorks can do this for you with a simple three step process that only takes you a few minutes to order online.

You can open your business bank account by following these four steps: 

Step 1 – Determine What You Need in a Business Bank Account

There are many things you should consider before you move forward with opening a business bank account. First of all, what type of bank account do you need? While most businesses start with a business checking account, a savings account might also be a consideration if your situation dictates. The fees your bank will charge should also be a strong consideration on which type of account is right for you. 

The most common types of business bank accounts are: 

• Business Checking Account: This is an account you can freely move money in and out of as your business needs occur. If you have lots of transactions that you need to make with deposits and bill payments then this is the account that is most likely right for you. This is also the most common type of business bank account.
  
• Business Savings Account: This is an account that you can make deposits to where you’ll earn extra money every month for keeping it in your account. You’ll be limited on the number of withdrawals you can make though, so this is only for businesses not looking to make frequent payments out of the account.
  
• Free Business Checking Account: This type of account operates just like a normal checking account but there are no maintenance fees and may not have a minimum account balance requirement. These accounts are typically online business checking accounts so it is right for newer businesses that don’t need a physical branch nearby.

Once you’ve determined the account that you need then you should determine how much you’re willing to pay every month for maintenance and security. Having a physical branch nearby is important for businesses that take on a lot of cash that needs to be deposited on a consistent basis. If you just need a business checking account to sign up for affiliate programs for your online business or to get your business off the ground then an online free checking account may suffice. 

Step 2 – Find the Right Bank for Your Business

Now that you know the type of account you’re looking for, you can narrow down which bank you’d like to work with. Oddly enough, the bank choice is made by proximity more than anything else for the majority of small businesses. Most businesses just want a bank with a name they can trust that is close to their base of operations. This makes transactions easy in the event the business owner has to go into the bank. 

While many business owners are satisfied with proximity, you probably should consider other things when choosing the right bank to partner with. There are a number of factors that should be considered when picking the bank, such as the banking fees and other costs. The factors we recommend include: 

• Bank Network: How convenient is the bank’s network to your operations? Are there plenty of free to use ATMs and deposit locations that meet the needs of your business? This is especially important to investigate if you’re opening a business bank account with an online provider without close proximity to a branch location because you need to know where you can withdraw funds from without paying a fee.
  
• Online Experience: How easy is it to transact business using an online website or phone app? Considering how much business is transacted online these days, this should be an absolute must that meets the demand level of your business needs.
  
• Costs: How much are the fees? Are you going to be paying a maintenance or security fee, and if so how much do you pay? Do your fees increase if your balance dips below a certain amount? These are all important things you should ask before signing on the dotted line and making your first deposit.
  
• Integrations: Small businesses typically use an accounting software like Quickbooks. Your bank should make your life easier, not more difficult. So, you should make sure that whatever accounting software you need, it integrates with your bank. If it doesn’t then you, or your accountant, will likely regret it later.

Once you’ve taken these things into consideration, and all other important aspects of the banking relationship that is important to you, then you’ll be ready to make a decision. Remember, the right bank doesn’t need to have a big name to be the right partner for you. For example, many credit unions and online banks have been great partners for businesses of all sizes. 

Step 3 – Gather the Right Documentation

Before you open a business bank account you’ll need to make sure that you’ve correctly incorporated your business. The bank will ask for your corporate documents before you’re able to make your first deposit. Having the right documentation with you at the time of application will speed up the entire process, and enable you to walk away with a business bank account the same day you apply, in many cases. 

The documentation that you’ll need to gather could include (call the bank before you visit to make sure you have it all): 

• Employer Identification Number (EIN)
• Social Security Number (if you’re an unincorporated sole proprietorship)
• Business Licenses
• Business Name Filing Document (if applicable)
• Partnership Agreement (if applicable)
• Articles of Incorporation or Organization (and appropriate banking resolution)
• Explanation of Your Business
• Funds to Deposit
• Some online banks may require more documentation to verify your identity

You can obtain most of this by incorporating your business ahead of time. MyCompanyWorks has been trusted to complete more than 60,000 business formations and counting. In just three easy steps you can be on your way to receiving all of your documentation so that you can immediately open a business bank account. 

Step 4 – Deposit Funds With Your Bank

Once all of your documentation is verified, the bank will process your application and open your account. To finalize the account opening process you’ll be required to deposit funds into your new business bank account. Many banks will not require a certain deposit amount while others will require up to $1,000 as the minimum opening deposit even if they don’t require a minimum balance during the life of the account. It’s important to check with your bank before going through the process so you’re prepared to finalize this portion of the process. 

Once your funds are confirmed into your account then you’ll be able to immediately access them through the checks that your bank will provide. Some banks will immediately provide a debit card while others will send them in the mail within 7-10 business days. The length of time it takes for your funds to show up in the account will depend on the bank you choose and the method you choose to deposit your funds with. For example, cash will be available a lot faster than a wire transfer from another bank (even if it’s your personal bank). 

Benefits of Opening a Business Bank Account

There are many benefits for both you, as a business owner, and for your business when you open a business bank account. The most important one is that you should always keep your personal and business funds separated. This can protect you from personal liability in the event that something goes wrong in your business. For example, if your business files for bankruptcy in the future then mixing your personal funds with your business funds could put your personal assets at risk and attainable by the business’s creditors.

Other than the legal ramifications of opening a business bank account, you can also benefit from being able to easily pay your business’s bills and making it easy to pay your employees. It keeps your money safe and allows you to start building a banking relationship that you could utilize for needed loans to grow your business in the future. 

Getting Started

If you’re ready to take advantage of the benefits of having a business bank account, you can get started today by registering your business. MyCompanyWorks will do this for you and you can get started immediately with our simple three step process. All you have to do is select a company type and your state, fill out a quick online form, and then you’ll receive the needed documents to open a business bank account. 

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.

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.

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!