How to Transfer Property to an LLCBy Tom Speranza, J.D.
How to Transfer Property to an LLCBy Tom Speranza, J.D.
A limited liability company (LLC) is a type of business entity formed under state law. Many businesspeople prefer LLCs because they combine the best features of corporations and partnerships, such as protecting members from personal liability, flexible structure, and pass-through taxation.
Why Transfer Assets to an LLC?
Transferring assets to an LLC is a way to not only protect assets but also to limit personal liability. There are various situations when you might want to transfer assets to an LLC. Some of these include when:
- You operate an existing business as a sole proprietorship or partnership and have formed an LLC to hold the business's assets.
- You have agreed to invest in a new or existing business owned by an LLC and want to transfer assets as part of your initial capital contribution.
- You want to sell assets to an LLC.
In each of these scenarios, you need specific legal documents to record the transfer based on the asset being transferred.
How to Transfer Real Estate
To convey real estate assets such as land or a building—called "real property"—to an LLC, you need a deed you can record with the appropriate county office. Most states require an attorney or notary public to witness and certify the signatures on a deed prior to it being recorded in local real estate records. Recording a deed also requires the payment of a recording fee to the relevant county.
If you want to contribute real estate to an LLC as part of an investment or sell real estate to an LLC, you must hire a title company to search the county's title records, confirm the property's ownership, and issue a title insurance policy to the LLC. Each state's law determines which party to the transaction—either the transferor or transferee—is legally responsible for paying the title insurance premium at closing.
Depending on the structure of the transfer and the parties involved, there may be state or local realty-transfer tax due at the closing. As with title insurance, each state's law determines which party to the transaction is legally responsible for paying the transfer tax at closing.
If the real estate is subject to mortgages during the transfer, the lenders must consent to the transfer for the recipient LLC to assume the payment obligations under the mortgages. If the lenders refuse to grant their consent, the mortgages need to be paid off at the closing of the transfer, either with cash or the proceeds of new mortgage loans on the real estate.
The legal requirements for transferring real estate are highly technical and differ depending on the location of the property. An experienced real estate lawyer in the appropriate state can ensure that your property transfer complies with the law.
How to Transfer Tangible Personal Property
Any asset that isn't real property is known as "personal property." To transfer tangible personal property (equipment, furniture, books and records, inventory, supplies, etc.) to an LLC, you need a bill of sale, sometimes called a general assignment, that lists the assets being transferred. Both the transferor and transferee sign the bill of sale at the closing of the transfer.
If the personal property is part of a pre-existing loan's collateral (i.e., the assets are subject to a lien or security interest), the lender needs to agree to the transfer to permit the recipient LLC to assume the obligations under the loan. If the lender refuses to grant such consent, the loan will require full payment at the closing in exchange for the lender's release of the lien.
How to Transfer Contracts
Commercial contracts (such as supply agreements, employment contracts, software licenses, and office or store leases) are an intangible form of personal property. An assignment and assumption agreement signed by both parties transfers a contract to an LLC.
If a contract provides that it can't be assigned by one party without the prior consent of the other party, the recipient LLC must obtain such consent before the contract assignment is legally effective. For example, if you are a tenant transferring an office lease into an LLC, the required consent to the assignment is from the landlord. If you license software from a tech company and you want to transfer the license agreement to an LLC, the tech company needs to grant its consent.
A corporate lawyer can draft the bills of sale and assignment-assumption agreements needed to transfer personal property to an LLC.
How to Transfer Intellectual Property
Intellectual property is another category of intangible personal property that includes trademarks, copyrights, patents, and trade secrets, such as product formulas, recipes, and customer lists. To transfer intellectual property to an LLC, you need assignment documents listing the specific items of intellectual property being transferred. Both the assignor and the assignee LLC must sign the assignments.
If any of the transferred intellectual property is registered with the U.S. Patent and Trademark Office (USPTO) or the U.S. Copyright Office, you must record the assignment with those offices and pay the applicable fees.
If the intellectual property is subject to liens or security interests and the underlying lender has not consented to the transfer, the applicable loan must be paid off at closing in exchange for the lender's release of the liens.
An intellectual property lawyer can prepare assignment documents and record them with the USPTO and the Copyright Office.
Transferring assets to an LLC can keep your personal and business finances separate, and most importantly, keeping your personal assets protected. When you've decided to use this strategy, consider the assistance of an attorney to determine which assets would be best to transfer.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.