The notion of converting property into a business entity is a common misconception. Real property cannot be incorporated or converted into a business. Instead, a property owner can form a company and transfer title to the property to the new business. A limited liability company, or LLC, is an independent entity that can own property in the same way as a person. The existence of the company is not dependent upon the ownership of the property. If the LLC sold the property at some point, the LLC would still exist until dissolved.
Fit your business needs with the right LLC package
Select a state in which to form your LLC. LLCs are formed under state law, and each state has its own Limited Liability Company Act and associated procedure for registering with the state by filing articles of organization. Typically, it's easiest to form the LLC in the same state where the property is located; however, you can form the company in any state and use it to hold property in any other state, without limitation.
Confirm that the business name you want to use for your LLC is available in the state you have chosen. Every state requires businesses to operate under a name that is distinguishable from any other business registered in the state. States usually maintain an online business entity database for new businesses to conduct name searches. This database is generally available through the website of the same state office that accepts new business filings, usually the secretary of state's office. Businesses set up to own and manage one piece of property are typically named after the property's address, such as 123 Main Street, LLC.
Obtain a registered agent. All states require businesses to designate a representative to accept service of process if the business is sued. Most states require the agent to have a physical address in the state, and allow the agent to be either a commercial company that provides agent services or an individual state resident. A few states allow new businesses to use a post office box instead of a physical address, and some require the business to designate the secretary of state as its registered agent. The instructions to the articles of organization template provided by the state you have chosen will provide specific instructions for selecting an agent that satisfies state law.
Go to the business or corporations section of the website of the state office that handles new business registrations, usually the secretary of state's office. Follow the links to the "forms and fees" section for limited liability companies and download the articles of organization template. All states provide a state-approved fill-in-the-blank document that you can use to quickly and easily form an LLC. You are not required to use the template; however, it ensures that your filing meets your state's legal requirements.
Complete the articles of organization. The document will typically require the name and address of the LLC, the name and address of the registered agent, the name and addresses of the members or managers of the company, and the name and signature of the person filing the paperwork.
File the articles of organization with the state. The template will contain instructions for filing the articles online, or by mail, fax or in-person, and will indicate the appropriate filing fee. Some states have an electronic filing system that can be accessed from the state website. The LLC is officially formed as of the date the state accepts and stamps the articles for filing.
Use a quitclaim deed to transfer title to the property to the new LLC. A quitclaim deed is the easiest way to transfer title to property between related parties where warranties are not needed. A simple quitclaim deed form can be obtained from any stationary or office supply store, or online (see Resources). Complete the form with the current owner of the property as the grantor, or seller, and the LLC as the grantee, or buyer. Record the deed with the Recorder of Deeds for the county where the property is located.
Tips & Warnings
There are commercial filing services that will set up your LLC for you for a fee.
References & Resources
- Business.gov: Limited Liability Company
- FindLaw: Writing and Filing the Articles of Organization
- Citizen Media Law Project: Limited Liability Company
- Essential LLC Accounting Concepts
- Entrepreneur.com: LLC Basics
- Bankrate.com: Understanding Quitclaim, Warranty Deeds on Property
- Score.org: Business Tools
- U.S. Small Business Administration: Small Business Planner
- ABA Family Legal Guide: Forming and Operating a Small Business
- FindLaw: Start-Up Toolkit
- The 'Lectric Law Library: Quitclaim Deed
- Jupiterimages/Comstock/Getty Images