The Limited Liability Company is a business entity that can be formed by an individual or a group of business owners to conduct most  types of business.

A primary function is to reduce the personal liability of the owner or operator.

The LLC is a particularly popular method of holding title when several people own property jointly. The decision of how to hold title to a property is a legal one and should not be made without the services of an attorney and certified public accountant.

 When it comes to multiple owners, two of the more common methods of ownership are tenants in common and the limited liability company. In recent years, more real estate investors have turned from the traditional limited partnership to the relatively new LLC.

In an LLC all the reported income, profits or losses, are passed through to the individual participants and they each file on their personal tax returns. They each pay their own tax obligations and there is no tax obligation imposed on the LLC itself.

 The members of an LLC can be made up of any type of legal entity including individuals, corporations, partnerships and other LLCs. There is no limit to the number of members and the liability of each member is limited to the extent of the member’s investment.

  The beauty of the LLC entity is the passing through of the tax benefits and the ability of an investor to be passive and hands off in the day-to-day operation of the property. This is particularly true when the investors have no personal relationship and simply want to invest for the merits of making a profit and for the tax benefits that are offered. The method of reporting to the investor members is important and it is also important how you are able to exit ownership in the event you are required to do so.

 There is no hard and fast rule as to how property incomes and profits are distributed. This process is defined in the subscribing documents and there may be multi-level shares where one party receives first priority to income. This may have to do with the amount of the investment, management participation or other equations that have been agreed upon by the members and the syndicator.

 When investing as a group of family members it is even more important that the responsibilities and obligations among the participants is spelled out clearly. In the absence of a limited liability company where such issues are addressed, you would want to consider such issues as a buy-out agreement and possibly insurance policies that would provide cross coverage on the owners.

If you jointly own a business or real estate investment you might investigate with legal and tax advisors converting your ownership to a LLC. Whatever ownership vehicle is used you will want to make sure it meets your needs at acquisition, during ownership and at the time of sale. The input of legal counsel will be dollars well spent and most likely will save you money down the road.

Charles Bogue is a broker with Coldwell Banker Brokers of the Valley in Napa, where he provides real estate marketing services as the CB team. Call 258-5221 or e-mail cbnapa@napanet.net.