There is no question that in situations other than personal homestead, it is extremely prudent to hold title to business or investment real estate in the name of a separate entity, and not the owner’s individual name. Why? If properly set up, a separate entity can protect an individual from personal liability if an accident occurs on the property, certain operating expenses/debts, and other potential perils. Without such protection, an individual’s personal assets could be at risk if a lawsuit ensues and a judgment is issued against the landowner.
With today’s technology, it is easier than ever for an individual to attempt to set up their own business entity. Forms are readily available on the internet, and the Secretary of State’s office hosts a website allowing for online registration and formation of a business entity. Unfortunately, more times than not, individuals operating without competent legal assistance tend to choose incorrect or incomplete forms when attempting to document the matter themselves.
In a growing number of situations, individuals are merely filling out the required formation registration on the Secretary of State website. While this procedure may be enough to register the entity and obtain a Certificate of Formation from the State, a fully viable entity has not been formed. Unless an actual Company Agreement (in the case of an LLC) or Bylaws (in the case of a corporation) are prepared, in addition to other necessary ancillary documents and corporate formalities, the validity of an entity could be easily attacked in the event of a lawsuit. Opposing counsel would argue that without a full set of entity documents, the entity was in fact operating as a sham. Without the entity protection, the plaintiff would typically execute their judgment against the individual, and the individual’s non-exempt assets.
In order to realize the benefits of owning real estate under a separate business organization, it is critical to document the entity formation fully. A qualified attorney should be able to assist in an efficient and cost-effective manner.
Contact Rattikin & Rattikin, LLP
Jeffrey A. Rattikin is an AV Pre-eminent rated attorney, Board -Certified in Residential Real Estate Law by the Texas Board of Legal Specialization. Mr. Rattikin has provided transactional legal services to clients across the State of Texas for over 28 years, emphasizing real estate, business and title law. Mr. Rattikin continues to define new legal frontiers through his incorporation of technology to enhance the attorney-client experience, as evidenced by his firm’s innovative websites www.rattikinlaw.com and www.texaslegaldocs.com.