Do we need to form a business entity to purchase property for son in another state?
Full Question:
Answer:
The purchase of real estate in another state does not require any particular legal entity. It is a personal decision as to how you want to hold title to the property. Husbands and wives often hold title to first or second homes as joint tenants with rights of survivorship. They may rent the property to a 3rd party such as a child.
If 3 parties are using their money to purchase the property but only 2 will hold title, then there may need to be an agreement between them about how the 3rd person will be repaid or have an interest in the property (such as with a life estate or a tenancy). It is possible for the 3 parties to create a business entity such as a corporation or a LLC which would purchase and own the property. Then the owners of the company can enter into a shareholder agreement or operating agreement that spells out their rights and obligations. The corporation or LLC could then rent the property to one of the owners or to someone else.
These types of decisions should be evaluated closely by a legal and financial counselor who can help determine what is best for your particular situation. Sometimes there are tax implications and regulatory requirements to be met by forming and maintaining a business entity. Therefore, it may be beneficial to review your situation with your tax professional or general legal counsel.
If the decision is made to create a legal business entity to purchase the property, it may be not be necessary to form the business in the state where the property is located even though that would work too. A company formed outside the state where it is doing business (such as renting), can register as a foreign entity (so that if there are local taxes to be paid, the state can monitor the situation).
