What is the Best U.S. Entity to Protect Your U.S. Real Estate?
The best choice to protect the “risk asset” like real estate is an LLC, a limited liability company. An LLC has a “charging order” protection which means if someone is going to sue the owner of the LLC personally for something unrelated to the operating LLC, the suing party would NOT get access to the ownership of the LLC that controls the assets inside the LLC and bank account. The suing party would be limited to the “charging order,” which means they would only get access to the “economic interest” of the LLC ownership interest. That means the suing party would only get access to distribution of profits if any are made by your LLC. This is very good for you, because this means that even if you are sued personally in the U.S., real estate in the LLC would be protected from a personal lawsuit.
The “charging order” is a legal remedy that will limit the person coming after the ownership of the LLC to only get an “economic interest” in the ownership. They would NOT get control of your LLC membership interest that controls the LLC with the bank account and investments in it. That means the bad guys who are suing you personally only get access to distributions when and IF they are made from the LLC. This is called the “charging order” protection and is a great level of protection.
An LLC can have one, two or more members. A single member LLC with one member is disregarded for tax purposes. That means all the profits or losses will flow to the owner. The owner is then responsible for U.S. taxes. A two or more member LLC is taxed as a partnership in the U.S. That is also a flow through entity where the profits or losses will flow to the owners. The owners are responsible for U.S. taxes. The IRS has established federal “default rules” to simplify this process.
KEY STRATEGY: The number of owners and taxation type in a U.S. LLC must be matched by the correct operating agreement. For example, if an LLC has two members and is taxed as a partnership, that is a different operating agreement than a two member LLC taxed as a C corporation. Both LLCs have two members, but since the LLC is taxed differently, there are actually two different operating agreements. That is a MUST to match the number of members with the taxation type. When you contact NCP to set up the LLC we will discuss with you what is the best way for the LLC to be managed - by managers or by members. This is a very costly mistake that most make online that can be very costly in the future!