If your creating several LLCs (to hold multiple properties), can you get a professional to do the first one and then just mimic the operating agreement (except for the name of the LLC of course), and do the second, third, LLC on your own and just pay the state filing fee? Thanks.
Why bother with multiple LLCs? There are ways to get better protection with less hassle. There are also legal theories that combine entities under certain circumstances.
the attorney told me to put each property in a separate LLC
Did he explain the tax and maintenance consequences with you? Did he explain how they can all be merged together? I don’t know what he told you, but you are paying him for advice and I have no idea about your situation.
Some people recommend holding a certain dollar amount worth of properties in each LLC. Depending on where you live, your state’s fees for the LLC could eat you alive if you had a separate LLC for each $25K house you own.
talk to your CPA on this subject. He is looking at the legal side but there is a cost factor involved.
Also nothing wrong with holding 4 or 5 properties in one LLC.
I know people who hold 4 or 5 properties on an LLC and those like myself who have a different LLC for each property.
I have a buddy that is a real estate investor who’s net worth is in the 800-900 million dollar range and he told me that I need a different one for each property. He said there were a number of times where he could have lost everything he had if he didn’t have them split up. Another benefit is Little Timmy is eating led paint off the walls and his toys made in China and the lawyer looks into how many properties you own on GIS before deciding if you are going to be worth suing. He sees one LLC with one house and tells Mom to take a hike. He sees a million dollars worth of assets and says, I would love to take this case.
Bill, I am not sure what you are referring to as far as this merging LLCs goes. The only way you can pierce the veil is if the owner of the LLC criminally broke the law.
Ohh, Hold and Buy. Yes. That is what I do. I set up my own LLC’s and got an online free Articles of Organization of a Domestic Limited Liability Company form that I modify each time.
If a group of entities has the same group of owners, officers, etc., they can be merged into a single entity, especially if there is no business justification for such a set up. If one is pierced, then the other entities can be attacked through foreclosure on LLC/partnership interests or stock shares. For LLC and partnerships, there are strict charging orders that can interfere with business so much that you will settle on their terms. If there is to be common ownership, the owners should have nothing to do with the business.
What is your basis for such a claim? Piercing the veil is not limited to criminal negligence. Any failure to maintain corporate formalities, treating the entity as an alter ego, commingling funds, etc. can be used to pierce the veil. There is also my personal favorite, fraudulent transfers. Any transfer or loan with the intent to delay, defraud, or hinder a creditor is fraudulent as a matter of law and can be undone by the courts. That includes making it harder for a judgment creditor to collect and also includes future unknown creditors for future unknown negligent acts.
Plaintiff’s attorneys don’t do research into the defendant before taking the case. If the case is legitimate, then they will sue first and worry about collection later. Most likely,they will settle for the insurance limits anyway, making entities a moot point, as very few judgments exceed insurance limits.
People don’ t seem to use LLC’s for the pearcable purposes you mentioned. Most use an LLC for protection from frivolous lawsuits. Example being you give a lead disclosure agreement to the tenant that says that it is very likely that there is led paint. The kid eats the paint and they sue you.
Please explain in a situation like this how they will attack not only that LLC but your other LLC’s as well. There is no failure to maintain corporate formalities, you aren’t treating the entity as an alter ego, your are not comingling funds and you are not preforming fraudulent transfers.
We are talking about whether or not multiple LLC’s protect you and themselves from eachother.
“”“Plaintiff’s attorneys don’t do research into the defendant before taking the case. If the case is legitimate, then they will sue first and worry about collection later. Most likely,they will settle for the insurance limits anyway, making entities a moot point, as very few judgments exceed insurance limits.”“”
So you are saying that a lawyer could care less how much potential money is in a deal and would take on a case where the plaintiff is flat broke knowing that you can not get blood from a stone and the case will result in a judgment that will never get paid as the person has no money to pay it. This does not sound like a smart business decision BLL. Personally, I don’t spend my time or money anywhere where it will not make me money. It’s not like they will get paid by the tenant to sue you.
You negligently build a deck that collapses and injures or kills several people. You made repairs to a heating system improperly and CO leaked causing injury to the tenants. You run a red light and kill someone in accident while conducting business on behalf of the LLC. You engage in violation of the Fair Housing Act. You engage in sexual harassment. You failed to maintain egresses properly. In each of those cases, You are the personally responsible since your personal actions caused the injuries and all your personal assets, including the other LLC membership interests, but excluding exempt assets, are available to pay the judgment. Maybe the creditor only gets a charging order for the LLCs, but if they are smart the charging order will have the following conditions:
- No member can take money out of the LLC
- The LLC can’t loan money to anyone
- The LLC can’t sell major assets, for example real estate
- The LLC can’t buy major assets, for example real estate
- All rental income must go through a receiver.
True, the creditor doesn’t get paid, but neither do you and you can’t run your business. Plus, you have to pay for the receiver.
The remedy for a frivolous lawsuit is not an LLC. It is a dismal of the case by the judge when asked by your attorney. Lead paint is a bad example. It is toxic. You should have said the fake slip and fall incident over the winter or tripping on the stairs. Those are frivolous cases usually and can get dismissed quite easily.
They know the property owner has insurance and they are going to settle for the limits. They are going for easy money, not a drawn out case. That’s why you refuse to settle when the case is weak and they go away.
I wasn’t able to p
I’ve been having a lot of computer problems so I haven’t been able to post back on this thread.
On thing I don’t understand–if you place the house in an LLC (let’s say for argument’s sake you put one house per LLC). Do youn still need to keep most or all of the equity stripped out of the house at all times also, to be safe?
If you want real protection you’ll need more than one LLC per property and equity stripping. Protecting assets is a multi-layered approach. Threats come from different areas. The one people focus on is liability, but that is the least threatening. Taxes destroy more wealth than plaintiff’s attorneys. How many people do you know that have lost everything in a lawsuit compared to the number of people who pay taxes? There is also the situation where you die or become incapacitated. What happens if you end up in the hospital in a coma or unable to work? Will your family see a reduced lifestyle if you die? Your business assets are at risk from your personal actions. LLCs don’t protect in that situation. There are many ways to set up things to protect yourself, but you need a qualified planner to guide you. Think of it like brain surgery. Would you do it yourself with a guidebook you got for free on the Internet or would get the best brain surgeon you could find?
Lawsuit threats are overrated. I only a know a few attorneys that have won a judgment in excess of $2 million. You can easily insure around that and homestead protection is available in vary degrees in all states.
So basically you are saying that LLC’s are completely useless and offer NO more protection than a straight out ownership of the house. I find that hard to believe. Most of the scenarios you listed were due to actual negligence. Lets use examples in a situation where the landlord for the most part follows the law. The examples you listed all require a permit in my town. Permit to build a deck, permit for HVAC. If the code enforcer says it’s good your chances are slim to none of someone winning a frivolous lawsuit against you.
I wouldn’t say that I ran a red light and was busy thinking about doing work for my LLC. I wouldn’t sexually harass a tenant or anyone who works for me.
Also, the question was related to multiple LLC’s and you saying that the lawyers will get into all of them.
And what was your point with taxes? Land Trust? 1031 Exchange? No one said that an LLC protects you from the tax man. The point was that an LLC is better than just owning it outright and you do have some protection. And that multiple LLC’s make it difficult for the scumbags to get a hold of your other assets. An LLC in Nevada even better because they will have to hire an attorney in Nevada to handle it which adds one more layer of expenses for them.
If they can freeze your LLC without actually taking your money, but make it impossible to do anything, what purpose does equity stripping serve? Is that supposed to deter lawyers from suing you in the first place, or is it supposed to help after someone has already sued you?
I’d like to add that I’m most concerned about what Hooch was talking about – someone doing a frivolous lawsuit and hiring an ambulance chaser. Or someone getting hurt (really hurt, not fake) by some hazard I was never aware of in the house. If I did something deliberately negligent I wouldn’t expect to be protected (and I certainly don’t intend to do anything like that).
As for my personal actions outside of the business, I’m not as concerned. I don’t have people financially dependent on me, and I don’t do things like drunk or reckless driving (no tickets in 6 years) :cool
I think Hooch just got to the crux of the issue. If I do something willfully negligent that hurts someone I expect to be sued and lose money. The nightmare scenario that I’m trying to protect myself from is: Litigious doofus of a tenant + ambulance chaser + emotional jury. I don’t expect to protect myself from every possible unlikely permutation of events that could possibly happen.
I never said they were useless. I identified the ways they can be pierced. However, they create more problems than they solve for the average investor and he would be better off owning in his own name.
That’s the only way to win damages. There’s no liability if there’s no negligence, and no lawsuit.
In those cases, there is no negligence and therefore no liability. Of course the plaintiff will lose.
There are ways to pierce the one LLC per property strategy. They aren’t bulletproof like you assert.
That is completely false. Real property is subject to the laws of the state where it is located. A NV LLC that is not registered in that state doesn’t exist. There is no way to force a CA judge to accept NV law or require a CA plaintiff in a dispute over CA real property to move the case to NV. The only time that happens is when there is an internal dispute among LLC members.
You send a back off bozo letter to the people with frivolous claims and they go away. If they push and the claim is truly frivolous, the case will never get to a jury because your attorney will have the case dismissed. If you are truly negligent, then pay a fair settlement. People sue because they are pissed off. Treat them right, especially when you are wrong, and you’ll never see a courtroom. That’s why you have insurance.
They are hoping to force a settlement. In the old days, they would have to wait for the LLC to pay the debtor, which never happens. Today, creditors have wised up and are starting to use charging orders that really interfere with business to force a settlement.
Equity stripping works in the event they foreclose on the LLC interest. You foreclose on the mortgage and take the property away from the LLC, leaving the creditor with nothing.
That’s no worry. The ambulance chaser will go away when you tell him to back off. He is hoping to scare you into paying. He doesn’t want a trial. Even if he sues, your attorney can get a frivolous suit dismissed.
Unfortunately, the law in many states holds you responsible. There is an assumption that you are aware of all hazards. That is addressed in the legislature.