An LLC or a Limited liability Company is fast becoming one of the most popular ways of holding a real estate property, especially in case of rental property investments. In the past few years, LLCs have become more or less imminent for most real estate investors.

Rental-property ownership is often accompanied by strong and inherent financial risks such as claims in regard to accidents, slip-and-fall claims, potential environmental-contamination claims, fire-related claims and other injury claims. Due to this reason, a number of rental properties and income generating assets are functioning under an LLC. This is done, so that their personal assets, such as stock, bank accounts, vehicles and their other LLCs, are not subject to any risk if an accident or other incident occurs on premises.

In fact, in most of the cases, the maximum risk involved is that of the investment by each member in the LLC. In many cases, owners of multiple rental properties split them up into separate LLCs to avoid concentration of their assets, so that in case of any accidents, the entire property of the owner does not get involved. LLC owners have to abide by the law and therefore, are fully responsible for personal actions of fraud or negligence.

Formation of an LLC bestows you with a number of advantages. A major advantage is in relation to taxes, where an LLC is benefited greatly. An LLC is classified as a pass through company. Due to this reason, it is subject only to capital gains on the ownership shares of the member, and not to corporate capital gains taxes, so there’s no double taxation. However, in case, an LLC has just one owner-member, it is liable to be taxed as a sole proprietorship. LLCs are certainly not flawless. In fact, they can be relatively expensive and complex to set up and may be dissolved if a member dies or withdraws. Some states have unique laws that govern LLCs.

Apart from that, an LLC offers its members significant flexibility in the management of the property, which is very helpful in multi-investor situations. In fact in an LLC operating agreement, the investors can expressly set forth and/or limit the rights, powers and obligations of the manager and the members. The Company Corporation can help protect an investor’s other personal assets by properly forming the LLC and helping to ensure that it is properly maintained.

Along with that, an LLC would also help you in other ways as well. For example, an LLC would not require many of the formalities, which are required in case of a corporation, such as annual meetings, various legal formalities etc. Apart from that an LLC with only one owner may not have to file a separate tax return and its profit or loss can be included on the owner’s tax filing. Whereas, in case of a corporation, a separate tax return must be filed.

Apparently, due to the above reasons, LLCs have become so popular in recent times.