Operate Your Investment Property Like a Business - Part 2

In this installment we will look at the process of registering a new limited liability company with the Washington Secretary of State Corporations by submitting a “certificate of formation.” But first let’s take a look at why we are choosing a LLC over a sole proprietorship or corporation. Limited liability companies are a creature of statute.


Happily, an LLC is a “best of both worlds” form of business organization because it features the flexibility of operating a business like a sole proprietorship (i.e., an unincorporated business owned by an individual without existence apart from its owner), but has the liability shield of a corporation (i.e., with a few qualified exceptions, a party only has standing to sue the company, not the owners of the company).


A “single member” or a “husband and wife” LLC is considered a disregarded entity for tax purposes. This simply means that the LLC is taxed like a sole proprietorship. However, once a third-party is brought in to the LLC as a “member,” then the “manager(s)” or “member(s)” (we’ll get into the significance of what that means in a later post), must elect to have their LLC taxed as either a partnership or corporation. I leave tax issues to the tax gurus and always recommend that my clients engage a CPA as part of the business formation team.


Here is a checklist of information that you will need to file a Certificate of Formation for a Limited Liability Company:

• Name of Company & Two Alternative Names;
• Contact Information for questions regarding the application;
• The Business Purpose of the LLC (e.g., real estate investments, any lawful purpose);
• The date you want the company to go “live” (e.g., date of filing or specific date);
• The “duration” of the company (e.g., perpetual or specific date);
• The LLC’s Principal Place of Business (e.g., your home or business address, or if you have an office at the MHC property location, then that address);
• Company Management (i.e., member- or manager-managed);
• Name, physical and email address of the “registered agent” (i.e., the person that interacts with the secretary of state and accepts service of process if the company is sued). Some of our clients prefer that we act as registered agent, others prefer to act as their own registered agent; and
• The names of the “members” (e.g., you, or, your spouse and you). There can be any number of additional members of the company. In fact, members of the company don’t even have to be human beings. We’ll go over that in later past too.

We usually also prepare the company’s Online “Initial Report” at the time of the filing of the Certificate of Formation as that is an option offered during the online filing process. A company’s initial report must be delivered to the Secretary of State within one hundred twenty days of the date on which a company’s Certificate of Formation is filed [RCW 25.15.105(3)].


The only thing you need in addition to the information provided with the Certificate of Formation is a brief statement of the nature of the business. But that’s easy; we’re in the real estate business, investing in real estate, so the nature of business may be stated as something as simple as “Real Estate Investments” or “Property Management.” Easy as that!


Once filed, you will need to wait about one week to hear back from the Washington Secretary of State, or your lawyer if he or she filed for you, on the status of your filing. Once you are notified that your application has been accepted then you will be issued a formal embossed Certificate of Formation from the Washington Secretary of State at which time your LLC is officially operating.


Now that you own a brand new limited liability company, we need to get busy with preparing a member agreement and transferring property into the name of the company. We will delve into “members,” “member agreements,” and “conveyances into the company” in the following posts.

About Brettin Law Offices PLLC

Who we are

Friendly, down to earth, and courteous, Brettin Law Offices PLLC is a conveniently located Seattle boutique law firm that concentrates on real estate, business and franchise transactions and litigation. We are trusted advisors and legal counsel for – 

• Individual & institutional investors, and commercial & multi-tenant property owners & developers;
• Commercial & residential landlords and tenants;
• Franchisors and franchisees, and those looking to purchase or sell an existing franchise;
• Buyers and Sellers of homes, condos, and residential building lots;
• Small business owners and those seeking to establish, buy or sell small businesses.

Lee Brettin - Real Estate Attorney

Lee Brettin, principal of Brettin Law Offices PLLC is a real estate attorney with over 30 years of hands-on business experience and over 20 years of experience practicing real estate law.  

  

Examples of Lee’s real estate business and real estate law background include:

- Negotiating and documenting real estate purchase and sale agreements for home buyers and sellers.  We are often called upon to review purchase agreements prepared by real estate brokers and home owners selling real estate “by owner.”  In addition to preparing or reviewing purchase agreements, we represent both buyers and sellers through closing of the sale, including reviewing and clearing title issues, closing statements, deeds, financing documents, condominium declarations and resale certificates.


- Negotiating and documenting commercial real estate purchase and sale agreements.  Our experience ranges from developing pro forma cash flow analysis to assist buyers or sellers calculate anticipated cash flow and returns on investment, negotiating with sellers of prime real estate for the purpose of amassing critical real estate parcels for the development of shopping centers and free standing buildings, zoning, planning, permitting, lot line elimination, exclusive and shared easements for utilities and ingress and egress, title work, construction loan documents, and closing.


- Drafting, negotiating and managing successful commercial leasing efforts on behalf of real estate developers, owners, and tenants.  Lee’s commercial lease experience encompasses managing the leasing efforts for over two million square feet of prime regional malls and power shopping centers; representing start-up business owners, as well as local and national brands in their negotiations for locations in regional malls and downtown retail cores nationally.


- Assisting homeowners in distress understand and negotiate short sales, loan modifications, and qualify for and participate in mediation under the Washington Foreclose Fairness Act.


- Representing aggrieved individuals and business entities in real property disputes, mediation and litigation.


- Acting as receiver, or representing receivers of office buildings, mixed use projects and shopping centers.


- Commercial and residential landlord-tenant issues, including unlawful detainer actions and unjust evictions.


- Representation of manufactured home communities and home owner associations.


- Representation of real estate brokers and brokerages, property managers and property management companies and other real estate professionals with matters of company policy, regulation, licensing, legal compliance, management and commission disputes, and consumer protection claims.
 

We pride ourselves on value billing and quick turn-around. Most of our transactional work is performed on a very reasonable flat fee basis. If you are considering entering into a real estate transaction, or think that you need a lawyer to evaluate and represent you in court, call us today for an initial free consultation to determine if our services are a good match for your transaction or case.