Posted by Chris (CA) on October 07, 2004 at 15:17:19:
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Investors who use LLC/Corp. - Posted by Chris (CA)
Posted by Chris (CA) on October 05, 2004 at 08:26:44:
I posted this yesterday in the main news group, but could probably get a better response in this one. I’m mostly interested in finding out how other investors set up their business enitity to do business in other states. I’m only using Nevada and California as examples. The question is, if you have a rental in New York, Arizona, and Oregon are you registering your LLC/Corp in New York, Arizona, and Oregon? Please read and share your experiences. Thanks again.
I live in California and planned on forming a Nevada LLC for investing in RE. My plan is to rehab using hard money, then refi to hold long term. I plan on investing in any state where there is a deal. My question is this…Are there any investors who have a business entity set up in a non home state, but do business in their home state. Example, I planned on forming a Nevada LLC, but would do a deal in California if it came my way. I’m sure there are plenty of you, so I’m wondering if you have registered that business entity in every state where you do business? In my example If I had a Nevada entity that did a RE deal in California then I would have to register that entity in California which means that I would have to pay $800 to the Franchise Tax Board. According to this http://www.nvinc.com/will_your_nevada_corporation.htm I would have to register a foreign LLC in every state that I did a deal in. I’m all for being within compliance of the law, but that seems like a pain in the you know what. So with that said, I’m really curious to see how others are doing it. According to that link, some states impose a heavy fine if you get caught. One, I believe in CA, even makes you guilty of a misdemeanor. Please share your experiences.
Thanks,
Chris
Re: Investors who use LLC/Corp. - Posted by SpyBoy
Posted by SpyBoy on October 06, 2004 at 17:23:20:
The relevant legal question would be;
What constitutes “doing business within the state”?, that would require registrarion.
The reason the question is relevant is because, according to the statutes (state “codes”, “statutes”, “general statutes”, “revised statutes”, depending on location, all similar with different titles) there are expressed and distinct exceptions to what is called “doing business”.
As it relates to PRIVATE ACCOUNT real estate investing, it is permissible for a “foreign” corporation (any entity from one state is foreign to another) to BUY and SELL, without registering anywhere (because it is not considered “doing business”) the following:
a) real property;
b) notes, mortgages; and
c) options (of most types, those that are not deemed to be “securties”)
Now, it is important to know that just about anything other than merely buying and selling is considered doing business, such as;
applying for ANY permits and/or licenses;
( building, zoning, etc.)
hiring employees directly;
(not contracting domestic independant contractors or a domestic corporation though!)
The permissible activities are fairly extensive, and a creative investor can play it for what they are able.
For example, banking and/or insurance relations alone are not considered doing business (can have domestic accounts and policies). I am not sure how actually re-financing would be affected, but my thinking is that it alone would not copnstitute doing business.
So, one could, through a foreign entity, flip real estate in thier resident state without registering said foreign entity (doing any repairs/restoration themselves or through independant contractor).
One could even have a foreign entity as beneficiary in a land trust, or as a member of a domestic entity.
The benefits, as I see it, would be primarily for privacy and asset protection purposes, not NECESSERILY, or soley, for tax mitigation (minimization).
For that, one would do well to do a web-search for topics such as; “legal tax avoidance”, “legal tax avoidance” + “illegal tax evasion”, and “offshore asset protection”.
For completely legal domestic tax avoidance it is vital that one come to understand the uses of the Self- Directed ROTH!!! IRA (and for attracting private investor partners). For instance, I personally know of one “transaction engineer” (entrepreneur) who brings Roth IRA investors together for joint real estate ventures and produces net profits of $500.000-1.000.000+ (in as little as two years)and ALL PROFITS ARE TAX FREE FOREVER!!!
Such is the value of creative entreprenuering and financing, proper planning and corporate structuring, and the Roth IRA.
Hope this is useful. SpyBoy