Creating a Rental Property LLC in Connecticut

What to know before creating a rental property LLC in Connecticut

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. 

Series LLCs for Real Estate Investors in Connecticut

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.

Steps to form an LLC for your Connecticut rental property

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. 

Step 1: Name Your LLC, Appoint a Registered Agent, and File Your Certificate of Organization

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. 

Step 2: Draft Your 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. 

Step 3: Transfer Property into Your LLC

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. 

Who should form a Connecticut LLC for their rental property?

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. 

How We Can Help

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.