There are so many niches you can fill as a business owner — professional services, retail, entertainment, and running a rental property, just to name a few. After all, people need places to sleep at night, or they might need a location to set up a storefront or warehouse space. Your business could be one of many that offers these spaces for rent, but you want to set it up the right way to avoid trouble down the road. There are a few entity types you can use to set up a rental property business in Connecticut, but the most popular choice is setting the business up as a limited liability company (LLC).
Limited liability companies (LLCs) are the most popular business entity structure for Connecticut real estate businesses. If you own rental property and are considering turning your side job into an official business, we can help you understand what it takes to form a Connecticut rental property LLC. Let us help you get started with your rental property LLC in Connecticut. We can also support your business venture at every stage of its development with our other products and services.
There are several steps involved with forming your Connecticut rental property LLC, but they don’t have to be complicated. Business entities are registered with the Business Services division of the Connecticut Secretary of State’s office. We can guide you through the process with our Connecticut LLC formation services.
You will need to determine a name for your LLC according to Connecticut LLC naming laws and register the name. You also need to appoint a registered agent to receive all legal correspondence. This can be you, but there are a lot of good reasons why it should probably be someone else who doesn’t need to take a vacation or go on mid-day coffee runs. You must also file your Certificate of Organization, which is essentially your formation document. Finally, you have to obtain an Employer Identification Number (EIN) from the IRS and draft an operating agreement.
The operating agreement is not a requirement of the state, but it is prudent to have one because it establishes how your business is governed. A well-drafted operating agreement not only sets out expectations for members and managers, but it also details operating procedures. Our operating agreement template can help you account for all the necessary components of how your business should be run.
If you already owned the property prior to forming your LLC, you will need to transfer the title. Property titles are transferred by filing with the local county or other municipality. There will likely be a transfer tax to complete the process.
Properties with an existing loan or mortgage will need this information updated by the lender. This could impact the terms of the agreement and loan rates. It’s essential to consult with your lender before making the transfer.
All lease and rental agreements should reflect the limited liability company as the property owner. Make sure to update all existing agreements to reflect this information so that they are legally accurate.
There are multiple types of business entities you could choose from, but forming an LLC often makes the most sense for rental properties. There are a number of benefits to starting a rental property LLC in Connecticut. Limited liability companies provide a layer of liability protection. Having this layer of protection generally means that you, as the owner of the LLC, are not personally liable for business debts and other liabilities. These belong to the LLC as a separate business entity.
Pass-through taxation is another benefit of forming a limited liability company for rental properties. A pass-through entity means that you are taxed only once. The tax obligations “pass-through” to owners and members rather than being applied to both personal income and business income. Essentially, this feature of an LLC prevents double taxation.
Having a separate bank account for your real estate LLC in Connecticut will help differentiate your personal expenses and business expenses. This division makes it easier to claim business expenses on your taxes without having to do deep digging.
Connecticut is one state that does not permit series LLCs, but they are worth understanding if you are a real estate investor. A series LLC is a unique type of limited liability company allowing the business to operate different segments or “series.” Each series operates as its own entity with a different name, financial accounts, and records. Different members and managers may be assigned for each series with different rights and obligations from other managers and members. Risk is segregated for each entity. Because series LLCs are not available in Connecticut, business owners need to use the standard structure for LLCs set up in the state.
If you are considering purchasing rental properties or renting out existing properties you own, it is worth considering starting a real estate LLC in Connecticut. Whether you have one property or several, any landlord can benefit from pass-through taxation and personal liability protection. Real estate investments with multiple owners strongly benefit from having an LLC business structure in place to determine rights and responsibilities.
Forming the LLC before conducting business is a good idea because any property can then be titled under the LLC at the time it’s purchased. This simplifies the process of transferring assets to the business. If you are considering purchasing property and have not done it yet, it may be worth going through the LLC formation process first.
Don’t make the LLC formation process harder than it needs to be. We are here to help. Our mission is to help move your business forward as efficiently as possible. You already have enough to do, so let us lend a hand. From LLC formation to annual reports, document amendments, financial transactions, and more, we can help get your business on the track to success and keep it there with less hassle.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Any Connecticut landlord can benefit from pass-through taxation and personal liability protection.
You register your business name in Connecticut when submitting your Certificate of Organization with the state. Make sure that you adhere to all state naming guidelines and ensure the name is available for use.
If all your business is conducted in Connecticut, you don’t need to register in your home state. But if your Connecticut LLC owns rental property in your home state, you’ll likely have to register it there. It’s always best the check with your home state’s authorities to verify the requirements.
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