Q: I am considering creating an LLC in Wyoming for owning real estate as a landlord. I currently live in California and am looking at purchasing rental property, possibly in Ohio. How do I start a real estate company spanning several states?
Thank you to Joe from California for that great question!
There are plenty of reasons landlords sometimes choose to form an LLC for real estate ownership. There’s the obvious one—personal liability protection. If your tenant sues, typically, the landlord won’t be held personally responsible to pay the debt. Only the assets held by the LLC are fair game for creditors to go after. And if you form your LLC in a state with strong privacy protections (like Wyoming!), you’ll get the added benefit of keeping your personal information off the public record.
There are a few different ways you can go about owning a rental property under a Wyoming LLC. You can just form a Wyoming LLC and use it to buy property. Typically, leasing property isn’t considered “doing business,” so you won’t have to foreign register your LLC where your property is located. You can also form two LLCs with a parent/subsidiary relationship. To do so in your case, you’d form a Wyoming LLC as a holding company and list it as an owner of an Ohio LLC subsidiary. Either of these routes will work if you just plan to own one rental property. If you’re thinking about holding several rental properties under one LLC, there’s a third option you might want to consider: forming a Series LLC in Wyoming. Here’s how it works.
What is a Wyoming Series LLC?
A Wyoming series LLC is a type of limited liability company that is a separate legal entity from its owner(s) and can have multiple cells (other LLCs under its ownership). It’s often referred to as parent and child companies—the parent LLC can have multiple “children” LLCs. Each of the cells can have its own purpose, assets, bank accounts, and, most importantly, limited liability.What is limited liability?
Limited liability protects your assets. Basically, it means that the owner(s) of a business can’t be held personally liable for the business’ debts. So, if you have an LLC, which has liability protection, you won’t lose your house, car, or other personal assets if the business gets sued. Pretty great, right?
This is what makes a Wyoming series LLC so appealing – in addition to the inherent liability protection of the parent LLC, each child LLC has liability protection. That means if a child LLC gets sued, the parent LLC won’t lose its assets.
This is one reason why many real estate companies, such as the one our client California Joe is thinking of starting, opt for a series LLC.
Do I Need a Series LLC for Real Estate?
Technically, you don’t need a series LLC to own real estate or be a landlord. However, many landlords choose to form a series LLC in order to protect their assets. Since each cell LLC can be siloed off from each other, it is especially useful to have a series LLC if you are renting out multiple properties.
A few benefits of having your property rentals in separate cells include:
- Limited liability protection for each individual rental
- Reduced start-up expense as a series LLC rather than individual, unconnected LLCs
- Easier tax filing requirements since Wyoming only requires one return per series LLC
Is a Series LLC allowed In Multiple States?
This depends on the state(s). Not every state allows series LLCs and because it is not federally regulated, the rules and limitations on series LLCs differ slightly from state-to-state.
However, as long as you’re working within states that allow series LLCs, you can grow your real estate company in multiple states. This lets you organize your properties through the parent company, keeping taxes simpler and expansion easier.
How can I expand to a new state?
Expanding your series LLC in a new state is relatively simple: obtain a Certificate of Good Standing from your original state, make sure the new state recognizes series LLCs as legal entities, and register for licenses and qualifications as needed.
For example, Joe in California wants to start a series LLC in Wyoming and own property in Ohio. To do this, Joe could:
- Form a series LLC in Wyoming
Starting with a parent company, your series LLC will require you to file with the Wyoming Secretary of State and set up a registered agent. Any additional cell LLCs could be added via the Operating Agreement. - Form a new cell LLC for each property
This includes the properties in Ohio or any other state. Check with a local real estate attorney to confirm if you need to set up physical nexus via state registration and registered agent to rent property in each new state. Often just leasing property does not count as “conducting business” so you wouldn’t need to register as a foreign entity. However, this changes from jurisdiction to jurisdiction, so double (and triple) check your LLC doesn’t need to be registered with the state to own and rent property. - Form a new LLC as needed
Some states do not recognize series LLCs, such as Alaska, Colorado, and Connecticut. To own rental properties with their own individual liability protection in one of these states, you would need to form a new LLC either in that state or apply for foreign qualification in that state.
Also keep in mind: to expand your business as a landlord in a new state, you’ll first need to obtain any licensing your state, city, or country requires. Check with a local real estate attorney to make sure you’re in compliance with all local and state landlord-tenant laws.
Which states allow series LLCs?
The following states currently allow for series LLCs to be formed: Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Virginia, Utah, Wisconsin, Wyoming, Puerto Rico, and the District of Columbia.
Additionally, California allows series LLCs to register as foreign entities and conduct business in the state even though series LLCs cannot be formed in California. Just keep in mind that your series LLC will have to pay California’s annual franchise tax of $800.