Everyone dreams of being a property owner someday. Now imagine that your dream comes true and you’re the newest land owner, house owner or car owner in town. You’d want to protect your property by all means, right? Many people purchase property under their individual names. However, this can result in personal liability being extended to the property in the event of a lawsuit that the property is subject to.
One of the best ways to protect your property is by transferring your assets to an LLC. As more and more people become business owners and register their companies, it has become the norm to transfer personal property to an LLC so that your property is not the subject of any lawsuit in the event that someone tries to sue you.
What Is An LLC?
An LLC or a Limited Liability Company is a business structure that gives business owners the type of protection given to corporates without being limited by heavy regulations. It combines the advantages of several business structures like corporations, general partnerships and sole proprietorships. The main advantage is that the company is a separate entity from its owners (called members) and is not responsible for any personal debts of its owners.
How To Transfer Personal Property To An LLC
First, you have to register a Limited Liability Company. It normally takes more time and money to register this type of company compared to a company limited by guarantee. You must also meet certain requirements for registering an LLC under the Company Act which include:
- Proposed and reserved unique name
- Purpose and objectives of the company
- Names of owners (at least one)
- Address of the company
- One Kenyan director is the other directors are foreigners
- Identification documents of the directors
- Percentage of shareholding for each director
Once you have registered your company, you need to determine whether the asset is eligible to be transferred to an LLC. You can transfer ownership of stocks, real estate property, artwork, automobiles, and other assets. If you have a property that you’re renting out, you need to notify your tenants of the new owner. For mortgaged property, you also need to notify your lender. When you’re fully compliant, you can start the transfer process as you would with any other transfer.
Before transferring your personal property to an LLC, it’s important to know of its advantages and disadvantages. Here are some.
Pros
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Protects personal property
The main reason people transfer their property to an LLC is to protect it. Generally, the company’s assets will not be at risk if there’s a personal lawsuit against its owner since a company is considered its own legal entity.
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Easier To Manage Finances
Investing in real estate can be lucrative which is why many people venture into it. For investors with multiple rental properties, it’s best to transfer them to separate LLCs so that you can distinguish personal expenses from business expenses. This makes it easier to manage your accounts and file taxes.
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Offers Tax Exemptions
LLCs benefit from being a flow-through/disregarded entity if it has a sole shareholder. This means that any earnings from the LLC are considered as income of the owner. Therefore, the owner is allowed to flow the earnings through to their personal income and skip paying taxes twice. This is beneficial if you make large purchases such as cars and real estate which you can write off as the property of the company to reduce the amount of taxes to pay.
Cons
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Expensive
As mentioned, registering an LLC and transferring property is a pricey endeavour. If you’re considering this, you should be prepared to spend a significant amount of money. There are lots of costs which can add up and become quite expensive.
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A Lot Of Paperwork
You should also be prepared to do a lot of paperwork. From registering the LLC to transfer agreements, the paperwork can be frustrating and seem never-ending. However, it’s necessary to ensure everything is in order to have a smoother process. If you can, get a lawyer to handle everything.
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Invalidate Your Loan
Another problem you can encounter if you choose to transfer your personal property to an LLC is that you could potentially invalidate your loan. Most mortgages have a due-on-sale clause. This means that if you transfer ownership of the property without letting the lender know, they could make you pay the full mortgage amount on the spot. It is, therefore, crucial that you alert any lenders of the transfer.
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