Questions & answers

Why would holding title as an LLC be advantageous to Chinese investors?

I am reviewing different options for purchasing commercial real estate. The decision we are making is taking title as an LLC or individual. Why might ownership in an LLC be advantageous?


Answers
  • Jessica Graf

    Seyfarth Shaw LLP
    February 15, 2018

    The advantages of creating an LLC is to protect the members of the LLC from liability. If you hold the title individually then all your individual assets are subject to liens, claims, etc. If the LLC holds the title, then only the assets/funds owned by the LLC are subject to liens, claims, etc. unless the members/managers of the LLC perform certain bad acts that allow the corporate veil of the LLC to be pierced. Basically and generally speaking, LLCs are used to shield the members and any manager from personal liability.

  • Mark Drumm

    Managing Director, Regent Park Advisors
    February 15, 2018

    LLC provides a layer of liability protection, but it is a complete pass-through tax entity.

  • Sheri Chromow

    SPC Advisors, LLC
    February 13, 2018

    I will start by saying that the last thing you want to do is to hold title individually. That would subject your estate to US taxes. The first thing to look at is creating the most tax-advantaged method of holding a title. That can be different for each potential owner. An LLC is a good entity because it limits the personal liability of the owners. Because the US and PRC have no tax treaty, part of your investment may be debt. Do you have companies offshore that do qualify for US tax treaty protection? You need to discuss your current investments, whether you plan to own individually or with others and determine the best tax structure first. Then whether you implement an LLC or a Trust, for example, will make sense.

  • Tom Paschall

    Checkmate Capital
    February 10, 2018

    There are several issues regarding this question -- the first is whether the Chinese investor is already an existing U.S.A taxpayer (i.e. files a tax return to the IRS in the U.S.A.) Generally, a commercial real estate investor should never hold property individually for liability protection purposes. But if the Chinese investor is NOT a U.S. taxpayer already, then either a corporation in the U.S. should be used (as a tax "blocker") or an LLC which for tax purposes has "checked the box closed" and been elected to be treated as a U.S. corporation for tax purposes. If using an LLC without the box checked closed, personal tax liability could arise in the U.S. which could be very inconvenient and costly to the Chinese investor.

  • Donald Wen

    WenWinSolutions
    February 09, 2018

    In simple terms, “LLC” by definition means limited liability company, and therefore is intended to reduce legal/financial liabilities to you as an individual.

  • Robert J. Ivanhoe

    Greenberg Traurig, LLP
    February 07, 2018

    This is common practice for any purchase of real estate in the US. The reason is that if real estate is owned in the name of an individual, any liability that is incurred in connection with the real estate becomes the personal liability of the individual owner. By putting the property into an LLC, then the liability of the individual members is limited to their investment in the particular property owned by the LLC and their other assets cannot be attached to satisfy a judgment or other liability relating to the property. It is extremely rare and ill-advised to own commercial real estate individually. LLCs are preferable to Corporations for tax reasons as LLC allow losses (i.e. depreciation) to be passed through to the individual investors while having the liability shield described above. Corporate ownership provides the liability shield for the individual owners but does not permit a pass-through of depreciation for tax purposes, and also had double taxation--tax payable at the corporate level and then again to the individual, so LLCs have become the preferred vehicle for real estate investment.

  • Alejandro Hinostroza

    SVN (Sperry Van Ness) - Rich Investment Real Estate Partners
    February 07, 2018

    The simple answer is that LLC allows you to limit the liability of loss if you were to financially lose the property.

  • Jeffrey Jahns

    Seyfarth Shaw LLP Real Estate Group
    February 07, 2018

    As a general matter, an individual should not take title to property personally due to potential liability issues. Also, depending on the property, there may also be tax advantages to an LLC. Also, some states prohibit title to be taken in the name of a foreign national.