When I first began learning about real estate investing, I thought for certain I was “putting the cart before the horse” by setting up a corporate structure for my real estate investing company when I had no revenue or company assets to protect at the time. I quickly learned (from Jeff Watson, an expert short-sale lawyer and resource of mine) that you really can’t do this step too early in your real estate investing business –or in any business venture of your own for that matter. If you are working hard to get it – work hard to protect it!
There are also several steps involved beyond setting up a legal structure for your real estate investing business to make sure you are operating properly. Beyond completing the proper filings with the state government in the state you wish to do business in, the steps include obtaining an Employer Identification Number and making sure your accounting system is established by way of a separate bank account for example. This post covers the first step of filing the initial paperwork; I will plan to address the other steps in future posts.
The main reason for initially setting up a legal business structure is to set clear parameters that you and your business are operating as two separate entities in the eyes of the IRS. There are many entity structures to choose from (since I am not an attorney nor an accountant, I can’t professionally advise) but I can tell you that I personally set up an LLC.
The 2 greatest pieces of information I discovered when I wanted to set up my real estate investing LLC was that:
1) You do not need an attorney to do this and
2) It does not cost a ton of money or time!
These steps today are customized for people wanting to incorporate in the State of Michigan; however, other states have similar processes and you can use these steps as a guideline. I recommend you start with your state’s Secretary of State website since you can usually find quick links to “starting a business”. Even quicker, simply Google “incorporating in (name of your state)” to start.
Here are the 7 Simple Steps to Set Up a Legal Structure for Your Real Estate Investing Business in the State of Michigan:
1.) Go to the State of Michigan’s Department of Energy, Labor & Economic Growth (DELEG) website and search the Corporation Division Name Division to be sure your desired business name is not currently being used: http://www2.dleg.state.mi.us/CORPORATIONS/htmldb/f?p=210:1:3618253801012695048
2.) Go to this link on the State of MI DELEG website and download the following forms: http://www.dleg.state.mi.us/dms/results.asp?docowner=BCSC&doccat=LLC&Search=Search
- Form 900 – Mich ELF Cover Sheet
- Form 901 – Mich ELF Application
- Form 700 – Articles of Organization
3.) Use form 901 – a one page fax-sheet used to get your credit card on file with the state so you can pay for the $50 LLC registration fee via credit card (I opted to do this because I didn’t want to mail payment via a check, which obviously takes longer). This fee can vary widely by state of course.
4.) You will know that your credit card is correctly on file with the State because they will fax you back a form with your “new assigned Mich-ELF Filer Number”.
5.) Complete form 700 – the Articles of Organization. This is where you write in the desired name of your LLC, the address, and name yourself as the registered agent.
6.) Fax the completed form 700 to the State of MI (the # to fax to is on the document) and use form 900 as a cover sheet. You must use form 900 as a cover sheet because that is where you will include that new Mich-ELF Filer Number the State assigned you and this will bill the credit card associated with that ELF number for the processing of your LLC.
7.) In my experience, within 24 hours, you can confirm the status of your LLC by going to http://www.dleg.state.mi.us/bcs_corp/sr_corp.asp and typing in your entity name to see the filing status, or you can always call the State office to be sure your request has been processed.
Once completed, congrats – you have taken the first steps to setting up a legal structure for your real estate investing business!
As always, I look forward to hearing from you! What are your thoughts, opinions or questions about setting up legal structures for real estate investing businesses? If you’ve done this before, please share your experiences with us via comments below.
If you got a lot of value out of these steps today, please do my a favor and share it with your Twitter and Facebook friends. It is so great to see the progress newbie investors are making by setting up their business’ right from the get-go 🙂
Talk to you shortly, to the success of your new business!
~Emily A. Hay