Trude Kleess, Attorney-at-Law

Legal Q&A

Q: I am interested in buying a piece of investment property with a friend. Iíve been told that we should look into forming a limited liability company. What is it and what would it do for us?

A: A Limited Liability Company is a cross between a corporation and a partnership.

Like a corporation, your liability is limited to your personal investment in the company. It works especially well for real estate investments for income tax purposes. You and your partner can allocate any losses or profits to each of you in whatever way is most beneficial for you.

Although not required by the Secretary of State when forming an LLC, I highly recommend putting together an Operational Agreement. It is similar to a partnership agreement or the bylaws of a corporation.

While you are both excited about your new venture, you should also agree on what to do if one of you dies or gets sick, or needs to sell his or her share. These items are addressed in an Operational Agreement.