Your Real Estate Entity Won't Protect You If You Skip These 4 Things
Picture this: a deal closes, months pass, and then a client sues. You call your attorney, confident that your LLC has you covered. Then comes the question you didn't expect: "Did you keep your business and personal finances separate?"
If the answer is "sort of," your entity may not protect you the way you thought it would.
Forming a legal entity for your real estate business is a great first step. But it's not a "set it up and forget it" move. Courts can look past an entity that's only a company on paper, and you don't want to find that out during litigation.
Here are four things agents commonly overlook. (Check with your attorney on how they apply to your situation.)
1. Keep commission money in the business's name
Have commissions deposited directly into your business bank account. If a check lands in your personal account, move the exact same amount to the business account right away. Then pay business expenses from the business account or a dedicated business credit card. However, Don't keep too much cash in the name of the business. Any more than 3 months of business expenses is probably too much.
Why it matters: Mixing personal and business money is one of the easiest ways to weaken the separation between you and your entity.
Easy first step: Open a business checking account if you don't have one, and update your payment instructions with your brokerage. If you need help with this part, Alchemy offers a full suite of compliance services here.
2. Stay in good standing with the state
Pay your taxes, file your annual report, and pay the state fee on time. Your entity has to remain active to offer any protection at all.
Why it matters: A lapsed entity can lose its protections right when you need them.
Easy first step: Put your state filing deadline on your calendar today, with a reminder a month ahead.
3. Document your big decisions
Hold regular owner meetings (quarterly at most) and record them in a corporate minutes book. Yes, it feels performative when you're the only owner, but that's the game, and it's a simple way to show your business operates as a real, separate entity. Record the big moves: switching brokerages, hiring, firing, major purchases, and loans.
Why it matters: Good records are evidence that you treat the business as its own entity.
Easy first step: Write up a one-page note of your biggest business decisions from this year.
4. Carry business general liability insurance
A general liability policy adds a layer of protection that your entity structure alone can't provide.
Why it matters: Even a well-maintained entity can't cover every situation, and insurance helps fill that gap.
Easy first step: Ask your insurance agent for a quote, and check what your brokerage's policy does and doesn't cover.
Not sure how your setup measures up?
Most agents we talk to are doing some of these well and missing others. On a strategy call with Alchemy of Money, we'll take a quick look at your current setup and point out where the gaps are, so you know what to fix before it matters.
This post is for general information and isn't legal advice. Please consult your attorney about your specific situation.
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