Owning property is a cornerstone of the American dream, but if it is deeded in your name, you might be opening yourself up to more risk than reward! Cost-cutting and risk avoidance are crucial to a company’s success – especially small businesses. Here at Weiss LLP, we have found that transferring one’s title to a property, owned in his or her sole name, into a limited liability company (LLC) offers such protection. Benefits to doing so range from avoiding payment of certain taxes otherwise applicable, to enjoying broad protections against liability as the sole member of the LLC. The conversion also allows for more flexibility and cost savings in estate planning.

As of 2017, a small business owner may now reap these rewards in Maryland under its Tax-Property Codes Section 12-108(y) (2017) and Section 13-207(a)(18) (2017), which state that if real property is transferred from a sole proprietorship into an LLC, and the sole proprietor is also the sole member of the LLC, the transferor is exempt from transfer and recordation taxes. This tax exemption results in nearly 2.25% worth of savings on the fair market value of the property.

While saving money on multiple taxes may seem like enough of an incentive, converting from a sole proprietorship to an LLC offers other legal advantages in the form of liability protection. When you operate as a sole proprietorship, there is no legal separation between you and your business. This lack of separation has several potential repercussions. For example, if your business goes bankrupt, you cannot file for business bankruptcy without also filing for personal bankruptcy, putting your own wealth and credit at risk. As a sole proprietor, you may also face personal liability if your company is sued, which again puts your assets at risk.

Creating an LLC is advantageous because it creates a legal identity for your business, one that is separate from yourself. This helps to protect your personal assets against company creditors. The creation of an LLC also allows for an easier transfer of ownership interests while still allowing the transferor to maintain control of the business during his or her lifetime. Finally, conversion to an LLC may also reduce estate taxes incurred during the probate process.

If you are a business owner interested in converting a sole proprietorship into an LLC, or need advice or help in business planning matters, please contact me, Randy Alan Weiss, at 202-296-2121.