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!

Funding your company can be difficult as a new LLC or corporation because you don’t have a financial history for potential lenders to make a lending decision from. Instead, you’ve got to find creative ways to fund your company in order to get the capital you may need to either launch or grow your business. The best funding methods for you will likely depend on where both you and your business currently are financially.

From bringing all of the money yourself to using your retirement funds or getting a large bank loan, we’ve summarized each of your best options below to help you find the method to use when funding your company.

9 Best Ways to Fund Your Business

The form of financing that is right for you will depend on a number of factors that include your business’s history, future strategy, and whether you want to take on business debt. Traditional loans available to new businesses will typically all require personal guarantees, which means if your business folds and can’t meet the debt obligations then you could be required to repay the funds personally.

Before deciding which funding method is for you, it’s important to go over each one in greater detail and know exactly what you’ll be getting your business into. Once you’ve chosen one, make sure you understand your agreement and read through all the fine print before accepting any money so that you can identify your obligations and what you might be giving up.

1. Bootstrapping

Bootstrapping is essentially self-financing. You, as the business owner, are utilizing everything you currently have available to fund your company. This typically means depleting your personal savings account and possibly cashing in your retirement accounts in order to finance your venture.

The best thing with bootstrapping is that there are no limits to how much of your own money you pour into the business. If you’re wealthy then the sky’s the limit and you don’t have to make any debt payments, which could handcuff your business early on. This is the best scenario for all business owners willing to put a significant amount of their personal money into the business.

2. Friends & Family Loans & Investments

This is the same as bootstrapping except you’re relying on other people who you are close to in order to get the money you need. Essentially you will ask for a loan from your friends or your family members who have money to invest. This can also be structured as an equity investment where your investors will get ownership in the business in exchange for the money they provide.

This is a tough way to get the money you need because if your business fails then it could damage your relationships with people you’re close to. Many business owners also don’t know individuals with significant disposable income to invest. If you go this route you need to make sure that you document every transaction so that there aren’t any negative tax implications down the road for your business.

3. Rollover for Business Startups (ROBS)

A ROBS allows you to invest your deferred retirement funds into your business without paying income taxes or early withdrawal fees. This is not a loan but if your business fails then you could lose the funds you invest. ROBS financing is not widely-known but if you’re willing to risk your retirement accounts then it could give you the capital you need without strapping your business with expensive debt payments.

A ROBS has setup fees that you must come up with on your own (about $5,000) and there will be a small ongoing fee to make sure that your transaction is monitored correctly. This financing method is typically right for individuals with at least $50,000 in a deferred retirement account and are willing to risk it for their business. Due to the specialty of the transaction you’ll need to make sure you partner with a firm that is experienced in ROBS transactions, which many accountants and lawyers are not.

4. Home Equity Loan (HEL)

A home equity loan is given to you based on the equity you’ve built in your personal home. This is something you must personally guarantee, but the proceeds can be used to fund any business. With a HEL you can typically borrow all of the equity you’ve built in your home up to 80% of the home’s current market value. You’ll need a minimum of 20-30% equity in your home in order to get a loan at all.

This isn’t a way to get large amounts of cash into your company but it is a way to get the startup capital you may need to get off the ground quickly. This is a loan so there will be monthly loan payments that you’ll personally be responsible for. Make sure you understand your obligations before accepting any money. This is one of the most affordable loans you could potentially qualify for that allows you to put the money in your business.

5. Angel Investors

Plenty of angel investors, on sites like angel.co, look to invest in businesses that they believe will be successful for the long haul. Angel investors are similar to venture capitalists in that they invest money in growing businesses and they look to eventually exit the investment with a profit. They differ in that they’ll likely ask for less involvement on a day-to-day operations than a VC. Angel investors also typically invest less than $1 million and they don’t need immediate growth like many VC’s require.

The problem with angel investors is that they don’t invest in many businesses. Many investors that have the capital may only invest in a single deal per year, if any, so finding the right match can take a very long time. You’ll need a proven business model that has huge growth potential. This is great for businesses that meet those standards because it is an investment and you won’t have to take on debt to get access to the capital you want.

6. Credit Cards

Credit cards are almost always the first form of debt you will be able to qualify for. If you have even average credit then you could get access to these revolving lines of credit to help cover the costs of business expenses as they pop up. When your business starts to get income for a few months then your business could qualify for credit lines that may be larger than what you can qualify for personally.

These cards carry large interest rates (12 – 29.9%) and can weigh down on your business in the early days if they’re not managed properly. Credit cards are best used as ways to cover unexpected expenses as opposed to funding initial business costs. In other words, these are good to apply for and have on hand in case something happens but the other funding methods will typically be a better fit for a new business.

7. Bank Loans

Your local bank may be your best bet to fund your business plan if you’re building a brick and mortar retail business. Local banks love to invest in their community and if you have a solid business plan, a good credit history, and are going to keep the business in your community then you could qualify. Bank loans are more difficult to get for new businesses today than they were 10 or 15 years ago, but they are still available. This is a great way to fund larger business costs that involve real estate because banks love lending on real estate.

You will have to personally guarantee any bank loan so it is imperative that you know what you’re agreeing to before you take the money. You’ll need to make sure you feel comfortable with the loan payment in the event your business fails to make the payments. These loans will also likely be secured by your own assets, such as your personal home. This is a great way to get access to larger funding amounts of $500k – $1 million, but they can be risky for the business owner.

8. SBA Loans

SBA loans are guaranteed, but not given, by the Small Business Administration (SBA). These loans are difficult to qualify for but carry some of the lowest business loan interest rates in the country. They are great for growing businesses looking to get access to capital to fund growth or to purchase needed real estate.

SBA loans aren’t a good fit for brand new businesses because you have to be in business for a minimum of two years before you can qualify. Your business will need to show growth and that you’ve been profitable for at least the last three months. While you can get access to as much as $5 million, it could be awhile before you qualify for anything at all.

9. Selling Company Stock

Taking your company public is often a goal of businesses that scale quickly. This means allowing your business to sell ownership shares on the open market. Some businesses use this as a tool to take money out of the company while others do this as a way to raise funds to grow faster. You can raise millions of dollars if your company is large enough.

While this option used to only be available for large corporations, small businesses can now raise money through the sale of company stock. In 2012, Congress passed a bill known as the JOBS Act or the CROWDFUND Act, which enables small businesses to use crowdfunding to issue securities. This makes it possible to raise smaller amounts of cash without having to take your business public.

Getting Started

Before you go down any of these paths to get the right funding for your company, you’ll need to first register with the right business entity. You can get started today by registering your LLC (or corporation) with us. It’s a simple three step process where you select your company type and state, you fill out a simple online form, then we send you your paperwork. Get started today!

You want to protect yourself and run your business in the easiest way possible. A good way to ensure this is to think carefully about which state you’ll incorporate in. In this article, I’ll share insight regarding how to incorporate your business somewhere other than your home state and why it might be beneficial for you.

In this article, we’ll cover:

• Why you would choose another state to incorporate your business
• Liability protection
• Convenience
• Restriction on type of business if it is in another state
• Pros and cons of incorporating a business in Delaware, Nevada, Wyoming and New Mexico
• Incorporating side projects or another business in different states

Why you would choose a state other than your current state to incorporate a business

It does make sense to choose your home state to incorporate a business in many cases, if not most. Although, there are a lot of reasons to incorporate other places. The two big reasons to incorporate in another state come down to liability protection and convenience.

For most business types that aren’t state-only licensed, you are able to incorporate outside the state you reside in.

Liability Protection & Convenience

The protection your business is supposed to provide your personal assets is called your corporate veil or your LLC veil. It’s one of the reasons you incorporate in the first place. You want the protection. You don’t want to lose your cars, house, or other assets.

If you’re in California and have a business entity incorporated there, about 25 to 50 percent of the time, the courts will pass right through your business entity and go straight for your personal assets.

They can even go for the assets of other people in your corporation.

This is an extremely important factor to consider, along with convenience, when decided where to implement your corporation or LLC.

States like New York and California have non-business-friendly courts and laws. However, Delaware, Nevada, Wyoming, and New Mexico have business-friendly laws and courts that will help protect yourself, protect your personal assets, and frankly protect your directors and officers as well.

Most business types can incorporate in other states, even ones that would surprise you like restaurants. The ones that can’t be incorporated across state lines usually require some sort of professional type entity from your home state, like a doctor’s office. But almost every other business that’s not professionally licensed, or some kind of a state-only licensed business, should be just fine incorporating in another state.

So, we’re talking restaurants, t-shirt businesses, manufacturers, service businesses, software–whatever–almost all of these can choose a different state than where they’re currently formed.

Here are some of the pros and cons of operating in each of the most business-friendly states.

Pros and cons of incorporating a business in Delaware

Delaware is known for being extremely business-friendly. They have a large business court infrastructure just for dealing with business cases quickly, and if you ever want to have a funded startup, VCs will almost certainly require that you set up a Delaware C-Corporation.

Around 90% of the Fortune 5000 are incorporated here! Obviously, there are some very good reasons why.

One of the biggest reasons is their massive Chancery Court system that specializes in quickly dealing with corporate legal issues. The infrastructure is there to support businesses quickly and efficiency with strong business protection and a strong business veil.

Large companies like Uber and Facebook may get sued 100 times per day. Delaware has the capacity to handle issues at a large scale, and that’s why this is the top choice for big business.

Pros of Delaware

• Use the business-friendly chancery court
• Prestige of owning a Delaware corporation
• Protection of personal assets
• Efficiency from

Not everything about Delaware is perfect for incorporating every business, however. Someone has to pay for that massive court system, so fees to incorporate here are pretty high.

You’ll also have to maintain a registered agent in Delaware (this is a service we provide for all 50 states). Then you also have to pay their “franchise tax” and file expensive annual reports.

The general complexity of filing and maintaining a Delaware business entity is a challenge as well, and most small companies don’t need this extra work, especially with some of the other states we’re going to talk about.

Cons

• Adds another level of complexity
• Have to pay franchise tax
• More expensive in general

Fun fact: you can get expedited filings of various levels in Delaware, up to a 2-hour filing for $500 extra!

Pros and cons of incorporating a business in Nevada

Nevada built an extremely friendly shareholder set of laws. As recently as a year or two or go, the veil had only been pierced in Nevada once. Nevada represents the “wild west” in terms of business law, in sharp contrast to nearby California. This libertarian approach makes it extremely pro-business with a strong business veil.

Pros

• Shareholder friendly laws
• Strong protection
• Don’t report certain things to the IRS

Of course, by incorporating in a state so lax that prostitution is legal, you may get a bit of a stigma, depending on your type of business. Let’s just say that a Nevada-addressed corporation doesn’t carry the prestige that a Delaware one does.

Because of the rush of companies wanting to incorporate in Nevada for their lax approach to business regulation and taxes, the state has made filing a bit more expensive, so that’s another downside to the state.

Cons

• Some scammy operations
• Negative stigma
• More expensive to incorporate here

Fun fact: all other states have reporting arrangements with the IRS, however the Nevada Secretary of State, department agencies, and taxation agencies do not. So that means they don’t report certain things to the IRS, which basically is a way for the IRS to figure out what you’re doing. This is huge for business privacy.

Pros and cons of incorporating a business in Wyoming

Wyoming created the LLC in the late 70s, based on a simplified corporation business entity concept that existed in Europe at the time. There was no such thing as an LLC not that long ago.

Wyoming also adopted extremely favorable laws for business, similar to Nevada. However, incorporating and managing a Wyoming business is much, much cheaper. It’s about ⅓ the price to incorporate and LLC in Wyoming, and about ⅙ to incorporate a C-Corp. Yearly management fees are much cheaper as well. This is one of the cheapest and safest states you can choose for your business.

Pros

• Very low cost of operations
• Speed to incorporate is very fast
• Strong protection

Cons

• Not super popular
• More difficult to go get a local bank account
• Certain stigma

Fun fact: a lot of people don’t know how great an opportunity it can be to incorporate in Wyoming, it’s called “Switzerland of the Rockies” and “Dick Cheney’s House of Secrets” in some circles because of the favorable business setup.

Pros and cons of incorporating a business in New Mexico

The New Mexico LLC comes with real privacy right out of the box. With an LLC in New Mexico, you don’t have to file an annual report. In fact, you don’t even have to register your name on the business, just a registered agent, which you can hire (we can help with that). There doesn’t have to be proof of any ownership by anyone!

Pros

• Doesn’t list anyone on their formation documents
• Unparalleled privacy
• No record of who you are

As usual, nothing is perfect. If you’re not listed as the owner of your business, a bank will have a hard time verifying you own it and it could be a challenge to set up your business banking with this entity.

Cons

• Banks will have a hard time verifying who you are

Fun fact: since New Mexico doesn’t require an annual report, when you file you get essentially a lifetime filing!

States to be avoided

States that tend to lean toward the left generally have less protection for businesses. More liberal states tend to be more likely to rule against a corporation and try to pierce the corporate veil.

The worst states for this of course are:

• California
• New York

In general, a more conservative state, like Texas or Tennessee, is going to be fairly pro business.

Starting a side project in another state

If you’re thinking of starting a project on the side, it could be great for you to research and look into a side entity. This gives you flexibility and the benefits we’ve discussed if you incorporate in one of the states above. You can set up one side LLC to manage all of your projects under, and when they take off you can split them off into their own, separate entity. We’ve written about this specifically here.

To Recap

• Incorporating in another state can be really great, but it depends on the type of business and specific needs.
• If you want privacy, incorporate in New Mexico.
• If you want protection, incorporate in any of the states mentioned, especially Delaware and Nevada.
• If you want to save money, incorporate in Wyoming.
• Incorporating in a different state is incredibly easy with MyCompanyWorks!

The new tax law, called the “Tax Cut and Jobs Act” (TCJA), was signed into law on December 22, 2017 and is the largest overhaul of the US tax system since 1986. The bill is huge, and actually, in our opinion, makes many aspects of the tax code more complex rather than simpler. Some of the details are not entirely clear yet so we’re still learning more each day as the IRS implements various rules and decisions.

However, there is some very good news for small businesses (under a certain income and of a certain type of business activity) and any business that operates as a C-Corporation.

Continue reading “How the New 2018 Tax Law affects Small Business Owners”

With the highest urban population in the United States and the densest system of highways and railroads, New Jersey is pretty much the promised land for any startup that requires an urban focus. It’s got a strong healthcare and manufacturing sector, and its transportation and technology industries are both booming. Continue reading “Overcoming The Biggest Challenge To Starting A Business In New Jersey”