Why Your RAL Needs a Legal Structure | Secure Your Investment
Jan 16, 2025
Starting your own assisted living business is exciting! But before you welcome your first resident, you need to set up a strong foundation. That begins with choosing the right legal structure for your business. It might not sound glamorous, but it’s one of the most important steps you’ll take.
Your legal structure will impact everything—from how much you pay in taxes to how well your personal assets are protected. Let’s break it down into simple steps so you can feel confident and ready to move forward!
DISCLAIMER - I'm not an attorney, you should not take advice in this blog (or video) as legal advice. Consult with a legal professional for questions about your situation.
Check out the video, too:
Why Do You Need a Legal Structure?
Think of your legal structure as a shield. It protects your personal assets (like your house, car, and savings) from any business risks. Plus, it makes your business more professional and attractive to banks, investors, and even future partners.
Without a legal structure, you’re operating as a sole proprietor or general partnership, which means you and your business are the same in the eyes of the law. If something goes wrong—like a lawsuit or debt—you could lose personal assets. Yikes!
With the right legal structure, you can separate your personal life from your business, giving you peace of mind and a solid starting point.
Top Reasons to Form an LLC for Your Assisted Living Business
1. Protect Your Personal Assets
An LLC (Limited Liability Company) acts as a shield between your business and your personal life. If your business gets sued or runs into financial trouble, your personal assets are off-limits.
For example:
- Let’s say a resident’s family files a lawsuit against your facility. Without an LLC, your personal bank account and home could be at risk. With an LLC, only your business assets are involved.
2. Flexible Management Options
Running an assisted living facility is a big job. With an LLC, you can decide how involved you want to be:
- Member-Managed LLC: You (and any partners) handle the day-to-day operations.
- Manager-Managed LLC: You hire someone to handle operations while you focus on the big picture or other businesses.
This flexibility lets you run your business your way.
3. Tax Benefits That Save You Money
LLCs offer tax flexibility that can save you money:
- Pass-Through Taxation: Your profits go straight to your personal tax return. You’re not double-taxed like corporations are.
- S-Corp Election: In some cases, you can elect to have your LLC taxed as an S-Corp. This could save you on self-employment taxes, but it’s best to check with a CPA.
The bottom line? An LLC gives you options to optimize your taxes.
Why Invest in Professional Help?
Sure, you could try to set up your LLC on your own. But hiring a lawyer or CPA is worth it.
- They know the rules: Professionals can help you choose the best structure for your business.
- They handle the paperwork: Avoid legal headaches by getting everything filed correctly the first time.
- They can save you money: Tax strategies and compliance tips from a CPA can lead to long-term savings.
Think of this as an investment in your business’s future.
Quick Recap: Why an LLC is a Smart Move
Here’s why so many assisted living owners choose LLCs:
- Protection: Your personal assets stay safe.
- Flexibility: Manage your business your way.
- Tax Benefits: Save money with smart tax strategies.
What’s Next?
Ready to take the next step? Here’s what to do:
- Talk to a Pro: Consult with a lawyer or CPA to understand your options. Firms like KKOS Lawyers or Anderson Associates specialize in assisted living businesses.
- File Your Paperwork: Your legal team will help you file your LLC paperwork with your state.
- Set Up a Business Bank Account: Once your LLC is official, separate your personal and business finances.
Every business is unique, so take the time to build the right foundation for your assisted living facility. A solid legal structure is your first step toward success!
To help you get started, download our Business Plan Checklist. This resource will guide you through the steps of building a solid business plan.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:01
[Music] hey guys it's brandon gustafson welcome back to assisted living investing happy to have you on the channel today uh quick reminder uh make sure you jump take a look over at assistedlivinginvesting.net would love to have you over on the website uh check out some of the free resources over there subscribe to my newsletter for future content also make sure you uh like these videos give me a big thumbs up uh make sure you comment down below um so that i can help you out as you're going through
00:00:40
your questions and and help you as you're trying to learn what this process looks like i love interacting with people and then make sure you subscribe make sure you ring that that bell over here i would love to to have you know you get notified as i get new content up there doing all those things helps other people really find the channel helps them learn more about assisted living and helps them get on this journey that that will lead to financial freedom for them follow me on my other social media
00:01:11
platforms i'd love to have you over there and just kind of continue the conversations that we're having i'd love to see you over there so in our last video we went over what an llc is and some other types of entities and just kind of gave a general overview of entities and legal structures today i want to get into why you need a legal structure for your assisted living facility why you need something you know in place to help you through the process the disclaimer again that i'm not an
00:01:40
attorney so any advice that i provide you uh should not be considered professional advice and you should engage a professional for your specific situation i went through a few different resources last time kkos lawyers and anderson associates i think are two great organizations that you could reach out to and probably get some some good assistance in your specific situation so i would highly recommend having a call with them and and seeing you know if you're comfortable working with any of them or their attorneys in
00:02:10
their offices um so with that caveat let's get started now the number one big reason for why you need an entity why you need an llc why you need something in place is protection having an entity in place is going to provide you with some protection for personal liability your personal financial assets aren't going to be in danger if you have an llc you know in the event that the llc defaults on debt or it's sued or something like that it's going to give you an added layer of protection
00:02:40
that's going to allow you to be in a better position just by having that llc in place so number one is protection this type of protection is not offered under sole proprietorships or under a general partnership you know where you are just using your personal social security number or something like that to go out and do business having that llc in place is going to give you that added protection and so that's the number one reason why you want to have the have an entity in place why you want to create an llc
00:03:12
you want to put it in there for that reason the next big reason is management flexibility so in an llc it gives you a little bit of flexibility in how you can manage that that entity so you could have what would be called a member managed structure or you can have a manager manage structure so i'm going to give a little bit of a background on what those are remember managed means that the members of the entity so say it's it's me and my dad um we are the members of the entity we manage the
00:03:41
entity as as members so i consider myself the managing member of the llc and so i do a lot of the the work and interactions but my dad is also a managing member um so in the event that you know there's paperwork that needs to be signed he's able to do that because he's a managing member um so i managed a member managed llc means that the members of the entity are actively involved and they're managing the company's operations we're active in in the daily operations of of the entity
00:04:09
of the company a manager managed entity means that the members of the entity can delegate that those management responsibilities to a manager quote unquote so that person could be a member of the entity but it could also be somebody that you bring in to manage the entity for you you know like an operations officer or a ceo or something like that you could bring somebody else in to manage the operations of the entity for you so it gives you a little bit of flexibility there in the case of a manager managed entity
00:04:45
the members act more as passive investors and are not necessarily active in the business so those are just a few different ways that you can have some flexibility in the way that you have your your entity structured your llc structured and who is managing the daily uh day in day out operations of the entity for you so another reason why you would consider doing an entity is for tax options now we talked about in our last video how an llc itself does not have any real tax advantages though it does allow you the option to elect
00:05:21
different tax statuses such as an s corp which we talked about last time where there are some tax advantages and llc is subject to what's called pass-through taxation and what that means is that the entities profits and losses the p ls for your specific entity are going to pass through to each member's individual tax return and and therefore the taxation happens at each member's individual tax rate so you're not taxed up at this higher rate it passes through and the amount of money
00:05:54
that comes through it's done at your individual tax rate that's something else that you would want to talk to a cpa an attorney make sure you have a good understanding in your specific situation on it i'm sure i did not give that justice but that's something to be aware of that there's what's called pass through taxation and and things kind of flows through it flows down to you and uh then lets you kind of deal with with the income the profit and loss at your own individual level at
00:06:23
your own individual tax rate as well llcs do not have to pay federal corporate taxes as well so that's something else that you want to make sure that you are aware of that an llc itself does not have to pay those federal corporate taxes so that that allows you to avoid double taxation in that case so just a quick recap why do you need a legal structure for your assisted living really the the big reasons are protection management flexibility and some of those tax options again i'm going to encourage you
00:06:56
to go and reach out to a professional to get specific information on your specific situation that's going to be the best way for you to do this there are tons of resources out there online that give you high level overview of why you would have an llc why you would have an s corp the llc versus an s core part would you consider a c-corp which i haven't even gotten into um and i don't think it's it's necessarily pertinent to what we're trying to build here with assisted living facilities
00:07:25
especially smaller residential facilities but these are all things that you want to do research on as you're trying to get started so i would encourage you to have a conversation with a professional in your specific situation help you understand why you should have an entity set up for your situation and how that can help you gain that protection that flexibility some different tax options and just have a good solid understanding of what you're trying to get yourself into it's worth spending money it's worth
00:07:56
having a conversation with an attorney especially if it's your first time i know a few hundred dollars might sound like a lot but it's it's well worth the amount of money that you're putting into it to have a good understanding of what you need to create um for your entity now next time i'm going to get into how i structured my assisted living business i'm going to give you an example of of how i did mine especially since i'm you know operating things out of state how we set up our legal structure
00:08:27
with not getting into any specifics or anything like that but just kind of share that information with you so that you have a good understanding of of how i've done it in the past and how hopefully that example will help you on your journey to help you get started in your own assisted living endeavors and help you get started investing in assisted living just a reminder make sure you comment down below make sure you leave a comment uh let me know if you have questions or anything about why you
00:08:57
would set up an entity or share your experience so other people can learn from you give me a big thumbs up make sure you like the video subscribe ring the bell um and you know make sure make it so other people can can find the channel and and learn and and continue to grow and progress in their journey to investing in assisted living i would love to see you over on the different social media platforms and make sure you visit assistedlivinginvesting.net free resources and and to have content over there and just a reminder um
00:09:29
it's not it doesn't take a lot it's just a little bit you can do it just get started and keep going and you'll make it through we'll talk to you next time [Music]
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