Owning a rental property requires a considerable amount of responsibility, which can sometimes lead to chaos if not handled correctly. A lot of landlords operate through rental property LLCs to legally protect themselves and their assets, to ensure effective management of their rental property. Fortunately, creating a rental property LLC in Tennessee is relatively straightforward.
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A Limited Liability Corporation (LLC) is a common type of business organization structure that is ideal for rental properties. LLCs separate the owner’s personal assets from business assets such that creditors will only go after the rental property assets in the event of any legal dispute. In other words, forming an LLC provides additional protection against personal liability.
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Here is a step-by-step guide on how to create your rental property LLC in Tennessee:
Step 1: Select a Name
Firstly, you will need a name for the rental property LLC. According to Tennessee law, your LLC's name should be unique and not be referenced to any other businesses that already exist. The name must include words like ‘Limited Liability Company or LLC’ to distinguish that your organization is a limited liability company. The LLC's name must be obtainable and differentiate from the other already existing LLCs in the state.
Step 2: Designate a Registered Agent
Selecting a registered agent is crucial to your rental property LLC in Tennessee. A registered agent accepts documents on your behalf, such as court papers, and notifies the business owner in case of any legal documents. It's essential to have a physical address (residential or business address) of the registered agent in Tennessee.
Step 3: File Articles of Organization
To create your rental property LLC, you need to file empty basic documents that must be submitted to the Tennessee Secretary of State's office, responsible for business and state documentation. It contains only the name, physical address, articles of trustees, founders, members' details, and signatures representing the rental property LLC business owners. Tennessee offers a simple ‘blank’ form for submitting the necessary information named 'Tennessee Articles of Organization', for rental property owners.
Step 4: Create an Operating Agreement
Although an operating agreement is not necessarily required under Tennessee state strictures, having an operating agreement can ease the process, confusion, expectations, and roles of each member of your rental property LLC. An operating areement is a document that outlines the terms and guidelines of your rental property LLC, including the operating process, management structure, financial distributions, allocation ventures, properties ownership, procedure for transferring ownership interests, and several other pertinent details. By having this document, it becomes clear about the protocol, disciplinary action, rights, and responsibilities among all interested parties.
Step 5: Obtain an EIN
The federal government, under the Internal Revenue Service (IRS) guidelines, requires anyone who owns or operates a business to obtain an Employer Identification Number (EIN), primarily if you plan back federal tax deductions.
There are three ways to apply for an EIN:
1) By applying via the internet via the IRS website
2) Applying via mail
3) Through Fax
An EIN application via the internet will be approved instantly, mailed apps take at least four weeks, and faxing in the that can take some hours before confirmation.
Step 6: Business License and Taxes
Finally, before you begin collecting rent, you are mandated to acquire state income tax certifications and prominent business permit levy registrations (depending on the size of your rental property LLC operation) to make sure that your Tennessee municipality authorities consider your rental property organization to be a legit and distinctive undertaking.
In conclusion, by following these steps accordingly, any rental property landlord can legally create their rental property LLC in Tennessee. It's also essential to do a feasibility analysis and identify any environmental issues that might affect your rental property and the LLC's application. Remember also to obtain proper license certifications and compulsory indent permits before beginning the rental property contracts. Once you have completed all these procedures, commence utilizing your LLC rental property most successfully and increasing your passive income significantly.
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