The “Forming An LLC or Incorporate in the Best State” Scam
As a real estate investor, it’s important when forming an LLC, that’s it done the right way. Having been around for awhile, it’s interesting to me how many things I hear differently about this topic. So, I decided to have my friend and attorney, Lee Phillips, who specializes in setting up LLC’s, set the record straight on this important topic… Forming an LLC in Nevada.
So what are the advantages or disadvantages of incorporating in Nevada?
For years folks have told me they are incorporating in Nevada or putting their LLC in Wyoming, because they have the best laws and much better asset protection. In three words – IT’S A SCAM!!!
I had an individual this week come to me and he had just paid $5000 for an LLC in Nevada, and had been assured that the LLC would give him total protection in his North Carolina state where he had investment property and lived. Basically, he had been lied to, and it had cost him a lot of money. $5000 to form an LLC in a state where you don’t live? Really? No corporation or LLC should ever ever cost more than about $2000.
When you form your LLC or corporation in a state other than the state where your property is located or you are doing business, you have all the fees in the state plus the registered agent’s annual fee. That’s why the guy wants you to incorporate with him. He gets the registered agent fee for doing nothing. (Registered agents don’t really do anything.)
When you put property into the LLC or corporation and start doing business in the company, you have to register in the state where the property is or your business activity is. There are no exceptions. When you register in “your state,” you have to pay all the fees in your state – plus the fees in Nevada or wherever.
When you register in your state, part of the deal is you are subject to all your state’s laws. Who cares what Nevada says?! Nobody has to go to Nevada to sue you. Nobody has to even read the Nevada (Wyoming or whatever state) laws to sue you. Nevada means nothing to the person suing you.
If your company doesn’t register in the state where it owns property or does business, it doesn’t have any rights in that state. So if the LLC owns the property, the tenant can simply stop paying rent. There isn’t a thing you can do about it, because your company doesn’t have any rights in your state, including the right to foreclose, evict, collect rent, or any other right.
Now, what about forming an LLC or corporation in that other “great” state? That state doesn’t have any corporate income taxes. (Actually, that’s not true for Nevada.) At any rate, it doesn’t matter. You are required to pay the income taxes where the money is earned. If you earn money in Iowa, you pay taxes in Iowa. It has nothing to do with the state where your company was formed.
United States Supreme Court Counselor
Very interesting, I am interested in investing in tax LIEN / TX DEED, however I am not a US citizen. In my case what is the best option to open LLC if I want to participate in auctions in several states (Arkansa, Alabama, Pennsylvania, Texas among others)? What is the best option to pay less taxes in Fliping properties (purchase and sale) and if I withdraw some gain from the company for my personal expenses what tax rate I will have to pay. Grateful for the attention.