Creating a Rental Property LLC in Maine

What to know before creating a rental property LLC in Maine

Before you form your rental property LLC in Maine, it’s best to review the three main benefits of an LLC. For one, an LLC provides personal liability protection to the LLC’s owners (also called members). This means that an LLC’s owner’s personal assets aren’t on the line in the event of a lawsuit.

The second benefit of LLCs is that they provide “pass-through” taxation. With pass-through taxation, the owners of an LLC only need to pay taxes once. Moreover, when LLC owners pay an LLC’s taxes, they pay at their personal income tax bracket, not at Maine’s corporate tax rate.

The third and final benefit of LLCs is that the personal assets of LLC owners or members are clearly separated from the LLC’s property. While it may not seem important, this separation is critical for both financial and legal reasons. 

Some states offer a type of business entity that is called a series LLC. This is where you would form a “parent” LLC and then form smaller LLCs within that wider umbrella company. That way, you could form a subsidiary LLC for each property that you own, each with its own bank accounts, ownership interests, and records. However, Maine doesn’t recognize series LLCs. Regardless, it’s good to know that they exist if you ever buy property in a state that offers this type of business structure.

Steps to form a Maine Rental Property LLC

Step 1: Choose LLC Name

When selecting a name for your LLC, be sure to choose one that meets Maine’s requirements. We can do a search for you to see if the business name you want is available. If it is, let us reserve the name while you get the filing paperwork together. 

Step 2: Select Registered Agent 

Businesses in Idaho are required to appoint a registered agent. This person is responsible for receiving important documents on behalf of the LLC, such as state correspondence and legal notices. If you need a Maine registered agent, we can help you find one.  

Step 3: File Certificate of Formation

To officially form your rental property LLC in Maine, you need to file a Certificate of Formation with the Secretary of State’s Office and include the appropriate filing fee.

Step 4: Create an Operating Agreement

Your LLC’s Operating Agreement is one of your most important business documents. It governs how your LLC runs and provides instructions for anything from voting procedures to dissolve the company. If you’re not sure how to create an Operating Agreement, we offer templates that can serve as a guide. 

Step 5: Apply for Employment Identification Number (EIN)

The IRS assigns businesses a nine-digit EIN that is used to identify their enterprise. Having one is necessary for certain business matters, such as opening a business bank account, hiring employees, and getting financing. You can apply for an EIN yourself on the IRS’s website, or we can do it for you with our EIN service. 

After you’ve completed those steps, your LLC will be up and running. That said, you must complete a couple of extra steps if you obtained your rental property before forming the LLC. Specifically, you must:

• File an updated deed — showing the LLC as the property’s owner — with the local city or county land office
• Pay all applicable title transfer taxes

If you have financing on the future rental property, make sure that you contact your mortgage company before making the transfer. Transferring your property to the LLC may affect or even terminate your financing arrangement. Once you’ve notified your mortgage company, you may have to complete additional paperwork or take other actions. 

If you’re a property manager with tenants or renters, make sure you inform them about the ownership change. Also, update all leases and rental agreements so that they show the LLC as the property owner.

Who should form a Maine LLC for their rental property?

It’s never a bad idea to separate your personal assets from your rental properties. Therefore, we recommend that most property owners create a Maine real estate LLC, especially if you intend to scale up your rental business and have multiple rental units. 

When you decide to establish an LLC for rental property in Maine, keep in mind that you should form the LLC first. Acquire the rental property after you’ve formed your company. There are a few reasons for this approach. First, forming the LLC first means that you’ll approach the real estate market as a commercial real estate buyer. Consequently, you’ll enjoy different financing opportunities, and may also obtain more favorable rates and terms. Forming the LLC first also allows you to buy the property in the LLC’s name rather than as an individual. This saves you the hassle of having to transfer the deed to the LLC later. 

If you buy the investment property first and then create the LLC, you’ll make extra work for yourself. When transferring the property from your personal ownership to the LLC, you’ll have to file various property forms and record the ownership change at the local land records office. In addition, transferring your property to the LLC may jeopardize your financing terms if you have a mortgage on the property. Finally, in many states, property transfers constitute a taxable event that increases your tax liability. 

How We Can Help

We offer a wide variety of services and products for all kinds of small businesses. Maybe you want to form your Maine rental property LLC, or maybe you already have an LLC and just want to make sure you stay compliant with state law. Whatever your situation, we can help you reach your goals.