How To Establish a LLC for a Short-Term Rental
If you have a property that you've decided to primarily use as a short-term rental, putting the property into an LLC can help protect you from adverse legal consequences. Establishing an LLC in most states follows a similar process.
Step 1 - Select a name for the LLC
You'll need to select a name for the LLC that isn't already registered with the state.
There are some other naming requirements - for example, Arizona's requirements are available at the Arizona Corporation Commission website.
A simpler approach is to simply use the property address as the LLC name, e.g.
"123 E Birch St LLC"
Names like these are usually available since real estate investors often create LLCs like this for ease of management. Investors with large portfolios do this in order to keep track of what assets are in each LLC, typically putting 1 asset in each.
Step 2 - Choose a registered agent service
A LLC typically has to have a registered agent (also called a statutory agent) filed with the state. This person will receive legal correspondence from the state, and it's required that this registered agent's address be posted on a government website.
In some states, the registered agent can be yourself, but unless you want to have your (likely personal) address associated with your name on a public website, using a registered agent service is the best way to go.
There's a number of registered agent services, such as ZenBusiness or Northwest Registered Agent. They offer similar services and usually will charge $100-$300 for a variety of services.
Typically the only things you need to pay for are:
- Registered Agent Service
- Privacy Protection / Use of Business Address
Step 3 - File Articles of Organization with the State
In most states the process for organizing an LLC can be done either online or by filling out a set of forms. This form is called "Articles of Organization," and you can see an example form for Arizona here.
You can also elect to have your Registered Agent service file the forms for you, since the Registered Agent usually has to sign an "acceptance form" along with your Articles of Organization. This is typically a paid service, so if your time is valuable paying for it may be worthwhile.
If your Registered Agent service permits it (or you've paid for the service), you'll can put down your Registered Agent's address as the contact address of the Members/Managers of the LLC. This prevents your personal address from ending up on the state's publicly-accessible website.
Furthermore, some states allow you to put a Trust as a member for the LLC. Putting a family trust as the member keeps your full name out of the trust while providing a tidy ownership structure for the corporation.
Once the Articles of Organization are filed, the LLC will be established within a few days, depending on your state's processing times.
Conclusion
Using an LLC is a good approach to limit liability for your business. Assets placed within the LLC are segregated from your other assets, and the very existence of the LLC can reduce the likelihood of you being sued.
For other tax compliance and other legal questions, you should consult a qualified professional, as in all things "it depends."
