Creating an LLC for Real Estate Investments in Russia: Pros & Cons

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LLCs are fast evolving, a preferred entity type for investing in and holding real estate. Here are the benefits they confer—and the disadvantages.

Limited liability companies in Russia have evolved into one of the most popular business entities for acquiring real estate. Owners often prefer to form an LLC when purchasing real estate—or when moving titles—so that the LLC evolves the legal owner of record sooner than the individual members.

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Here are the pros and cons of forming an LLC for real estate investments in Russia.

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Pros

  1. Bypassing Personal Liability

This is the immediate advantage of an LLC. You want the best choice for limiting your liability should an unforeseen event arise relating to your property. LLCs provide that protection.

For instance, if someone is injured while staying on a property you own, even if you do not live there or have any relation to the guest, they could potentially seek a legal claim against you, the landlord, for their injuries.

Accepting your acquired property insurance to cover such incidents, your homeowner’s insurance policy would supply coverage up to a particular financial limit. But if the amount of damages the injured party seeks transcends the policy limit, your assets could be exposed.

If on the other writing, you placed the deed and title to the property in the name of an LLC, only the LLC (and not you) would be designated as a defendant. More significantly, only the LLC’s assets would be obligated to pay an honor of monetary damages if the injured party’s suit is successful. Hence you are provided anonymity, and your investments are not exposed.

Related: Opening a company in Russia 2022

Another justification for placing a property title in the name of an LLC is that it gives you liability defense against monetary judgments if a financial dispute involving the LLC arises.

If a third player succeeds in obtaining a monetary judgment, the judgment creditor can’t force the sale of a natural gift held by an LLC—the judgment debtor. Instead, the judgment creditor is typically needed to obtain a “charging order” from the court that, in turn, becomes a lien on the real estate. While this is by no accounts cause for celebration, it’s better than failing the property altogether.

Members of LLCs who own real estate as part of their investment portfolio also emanate favorable tax treatment from the Internal Revenue Service.

Whether you are the sole proprietor of the LLC (single-member LLC) or one of several members (multimember LLC), you benefit from so-called pass-through taxation.

For income tax purposes, pass-through taxation guides to the fact that any revenue earned by the LLC—including profits forged through real estate (such as rental revenue from leasing an LLC-owned property)—will pass via the LLC to its members.

Any revenue earned by the LLC is not taxed at the corporate level (as would be the case with a traditional corporation) but only at the individual level. Each LLC member registers the income on their income tax returns—usually on Schedule C.; these pass-through rules help members of an LLC avoid double taxation.

        2.Professional Appearance

An ethereal benefit of owning and holding real estate in the title of an LLC is that it seems to the public to be more professional, mainly when advertising a property for lease to commercial or residential tenants.

An individual or business examining to lease property may be more comfortable renting a piece of real estate

         3. Simple Transfers

Who can sell an LLC through a relatively simple transfer of membership interests? The LLC’s real estate will continue to be owned by the LLC but with new LLC members. Continuity is preserved, and the transfer is seamless.

Cons

  1. The ‘Due on Sale Clause

Be cautious about transferring any real estate held in an individual’s name to an LLC. If an individual initially secured financing and qualified for a mortgage for the real estate, the individual’s name will appear on the mortgage documents as the legal owner of record.

In the event of a transfer of real estate from an individual owner to an LLC—which is treated as a sale of property—the LLC owner must ensure that the name in the property insurance documents matches the grantee on the deed. The mortgage lender will often know of the transfer when the property insurance bill comes due (if insurance is escrowed) and may argue that the transfer breaks the terms of the mortgage’s “due on sale” clause.

The due on deal clause is a standard requirement in a mortgage that requires that the borrower (the named property owner) pay the mortgage balance in full at the time of a sale. You may want to pursue a waiver from the mortgage lender before transferring real estate from an individual’s name into the LLC.

       2.Transfer Tax Obligations

LLCs may also raise transfer tax issues. Be sure to consult your state’s laws before moving forward with an LLC. The percentage membership interests in the LLC must be the same as the ownership percentage interests before the transfer.

Russian lawyers can help you start an LLC quickly and easily. Get started by answering a few simple questions. We’ll assemble your documents and file them directly with the Secretary of State. You’ll receive your completed LLC package by mail.

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Summary
Creating an LLC for Real Estate Investments in Russia: Pros & Cons
Service Type
Creating an LLC for Real Estate Investments in Russia: Pros & Cons
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Russian lawyers,
Presnenskaya Nab. 6, bld. 2, Imperia Tower. ,123112, Moscow, ,Moscow-123112,
Telephone No.+7 (967) 170-68-30
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Opening a company
Description
LLCs are fast evolving, a preferred entity type for investing in and holding real estate. Here are the benefits they confer—and the disadvantages. Limited liability companies in Russia have evolved into one of the most popular business entities for acquiring real estate. Owners often prefer to form an LLC when purchasing real estate—or when moving titles—so that the LLC evolves the legal owner of record sooner than the individual members.
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