No matter how much you are killing it in sales in the real estate world, nothing can halt a successful business as quickly as a lawsuit. And because real estate agents are entrepreneurs dependent on production, the risk is even higher than for other types of business owners. It’s important to make sure that your business—and your livelihood—are protected against possible risks. One of the best ways to do this is to form a business entity, such as a limited liability company, or LLC.
How do you know if you need an LLC? Many real estate agents are considered independent contractors, responsible for calculating their own payroll taxes and submitting them to the government. If this is you, then you are treated as a separate business from your employer in the eyes of the government—leaving you susceptible to personal responsibility in the case of a lawsuit.
Unlike a sole proprietorship, where you are essentially viewed as an extension of your business, an LLC gives protection against your personal assets if your business is ever engaged in a suit. This means that if your business is found liable and has a judgment filed against it, or it incurs debt that you can’t repay, your personal assets could remain unaffected. If you are a sole proprietor, all your business and personal assets are at risk.
There are a variety of options when determining which business structure best fits your needs, that’s why it is important to talk with an attorney that has experience setting up LLCs, like the team at LexLaunch.com. Besides establishing legal protection, which is enough in and of itself to create an LLC, there are a variety of other benefits as well. Here are a few:
- Business Write-offs. Businesses get to deduct some forms of business expenses from their taxes. As a realtor, you are often responsible for paying for your own marketing, office space, mileage to and from events and showings, and more! If you have an office area in your home, you might be able to deduct some of your mortgage and utility bills as well. It’s important to consult with your CPA to consider the tax savings of setting up an LLC.
- Separate Bank Account. It’s important to keep your business and personal banking as separate as possible. If you create an LLC, you can apply for a business bank account, which tends to have more perks than a standard personal banking account. Keeping these accounts separate also makes business accounting and budgeting easier.
- Business Loans and Credit Cards. If you own a business, you can apply for loans and credit cards that often times offer better terms than loans and cards for personal use. Benefits include a longer pay-off cycle, reduced APR, and more available credit. You can also ask for multiple cards for additional people who might work for you, such as an assistant.
- You hear it everywhere in business these days: “Be your brand.” Forming an LLC allows you to have both a personal and a professional persona. How you are perceived by future clients can mean the difference between building your customer base and losing it. Forming a business gives the impression that you are dedicated, that you are committed, and that you are unique from other realtors associated with the same company.
- Here are a few more important reasons for real estate agents to form LLCs, from one of the founders of LexLaunch.com, Tim Denker:
Whether you’re a new agent or you’ve been around for awhile, it’s important not to make decisions regarding business formation on your own. Before deciding on an entity, it is important to consult with professionals who have experience helping small business owners decide the right type of structure for their business, like the attorneys at LexLaunch.Com.
Our attorneys will also help you create the written documentation you need to set up your structure, as well as submit the documentation on your behalf. They can also review any specific documentation, contracts or agreements specific to your other affiliations with larger real estate groups.