Do I need a lawyer to set up a LLC?

Hi, I am trying to set up a LLC in NY and OK (the states I have properties in). Should I use a lawyer? I have called a few lawyers. In NY, it costs a little more than $1,000 including publication fee (I forgot to ask if it covers the operating agreement). I of course searched on the internet and found a company that will do it for 365 + 150-250 for operating agreement. It’s about 50% lower than using a lawyer.

But can I trust the company that does it so much cheaper…? ??? I want to make sure that it’s set up properly and comply to the state law… I would feel better if I use an attorney but they are sooooo expensive. What do people usually do? Does anyone have good experience with reasonable priced entity formation service?

I typically charge $200 plus the state fees. for that you receive:

the LLC
articles of organization
certificate of formation
tax ID number
operating/management agreement
tax elections as required
free advice

you can use that as a guideline. Lawyers are good at making things more complicated than they are…and then billing by the minute.

well, i’d go with mcwagner, basically for all that stuff, plus the free advise.


what is the point of the LLC?

to “hold” your properties?

think this through first. operating agreements come with your corporate record (in new york anyway). all sorts of forms come with the corporate record - but if you have no members/partners, no business objective, other than buy real estate to rent/sell, and you don’t actually treat the LLC as an OUTSIDE ENTITY, it’s useless and confusing.

Once the LLC purchases or takes ownership of anything, it is no longer yours, it is the property/inventory of LLC. That’s important. And it’s important that the LLC has beginning and ending balances, profits, losses etc. the weird thing about LLC’s is the whole pass-through taxation they offer.

Don’t forget, that with the LLC - and mark, correct me if i’m wrong - but if you are the Operator, Treasurer, and Secretary - you must be paid a salary for this, on top of your member allocations, or at least you should be…and for one glaring reason - businesses must know what to pay possible employees[themselves] (fixed costs) - in order to determine salability of business.

also, the point of any business, is to develop inventory and/or systems that let the owners/investors know that

  1. the business is profitable
  2. the business can be sold due to systems, property ownerships, contracts, customer base, R&D, inventory build-up etc.

I believe, that in order for an LLC to be valid - it must work to achieve the above, at the very least. if it is to simply “protect” you from law suits, that’s a weak defense for any legitimate negligence on your part as some schlubb, trying to pass off your properties as being owned by an LLC and therefore affording you, LIMITED LIABILITY.

It’s weak at best and the booming popularity of LLC’s with this goal in mind, may jeopardize the benefits of a “real” LLC entity, as Congress and lawmakers discover the seediness of rei. and i’m not saying that it is seedy or wrong for rei’s to do everything they can to protect their assets, but i just don’t think people, in general, are using LLC’s with the correct business mentality.

I am a member of an LLC. The LLC purchased its first property, under my management. I’m a member and an employee of the company. As a member - I provided funding through contribution and debt financing. Another member did the same thing. He is also the Secretary (employee).

Oh and Mark helped me understand the seperation piece of this. :wink:

but like i said, i still disagree on the whole “asset protection” thing - as being the sole reason for utilizing LLC. it just doesn’t make business sense.

Good Luck.

you’re funny. first you tell everyone what a waste of time they are, then you mention that you’ve covered your ass with one. that’s rich.

the point of the LLC is that it owns/operates the properties so that you don’t.

Yes, it must be properly operated as a business and not an alter ego of the individual. Buying, renting and selling real estate most certainly is a valid business. Ask Trammel Crow.

“Required” to receive a salary for being operator, treasurer and secretary? says who? Give me a break.

The point of a business most certainly is NOT to develop inventory and systems. My accounting practice has neither and is most definitely a business. Contracts? I have none. R&D? Nope. Yes, businesses are in business to make money, but there are other equally valid considerations as well. One of those other considerations IS asset protection. So, if you’re going to be in a business to make money(real estate) you are undeniably better off to do it in a format that also gives you some measure of protection of your personal assets. The business will make or not make money either way. How it is taxed is irrelevant to this discussion. What is important here is the additional protection that is afforded by correctly operating inside a valid entity seperate from the individual.


initially, i made the MISTAKE of thinking that the purpose of an LLC was “asset protection”. i have sinced learned that it is a business structure that allows much more than “asset protection”.

and if it is not structured right and run correctly, an LLC will not “protect” you from anything.

the whole idea about how LLC’s are spoken about in investment circles is funny. alot of the people who come into these forums (like myself) don’t have a freakin clue about business or investing. they just use terms and read posts or books with terminology they simply do not fully comprehend.

that’s the point i’m making. is an LLC better to be a member of when it comes to holding title to assets? of course it is. BUT, if it’s just a piece of paper along with some filing fees behind it and a corporate record that sits on the shelf - it’s useless.

if people are not willing to learn about business entities, namely how LLC’s work, then open a DBA - get liability insurance (you’re going to have to anyway) and forget all this mumbojumbo. the problem is, guru’s in rei have got people thinking they can go out and start buying properties in 30 days and i don’t care what anyone says - that is just not possible to do CORRECTLY if you have never had any experience in the business field or know people - smart people who are going to personally help you out.


I’m not trying to argue, and I apologize if I come across like that. (my lovely wife tells me I need to work on my “approach”)

what you say is true. BUT

in this forum, I simply try to point out the risk involved in owning property in your personal name…and how to minimize that risk.

Having said that, it is much better and easier to start off right than discovering later that there’s a better way. when it’s much more of a hassle and costly to “correct” it.

Like you, start off right for one reason. Later, you may see all of the other benefits. But, at least, you’ve made the right steps all along, for the wrong reasons, instead of having to re-do a bunch of stuff that you did wrong for the right reasons.

Very interesting discussion.

I’d like to ask Mark a few questions then. Your first line of defense against a lawsuit would be your resident agent? If yes, then would it be beneficial to use a lawyer to form the entity? If no, then what is your first line of defense?

My understanding is that your LLC used as asset protection is only as good as your operating agreement because without that, your entity is basically just a partnership, plain and simple and the managing members will be held personally responsible for damages. True or False?

The idea is to make people trying to sue you go through multiple hoops to where it’s not in their best interest to pay a lawyer to do all this research just to find out if you’re vunerable or not. True or False?

Thanks in advanced.

your last statement is true. don’t be an easy target.

your second statement is not. by law, the members of the LLC are not responsible for LLC liabilities. HOWEVER, if the member personally is negligent, then the member can be sued seperately from the LLC. An LLC is never a partnership. They are covered by completely different sections of the law (at least in TX). Likewise, any debt that the member personally agrees to be liable for (cosign) can be held.

so, in light of that, your FIRST line of defense is to NOT DO STUPID STUFF. like, fix that loose board asap. so that you are not personally negligent.

Other things you can do:
properly operated legal entity(ies). note that it must be properly operated so as to avoid being called an “alter ego” of the individual.
liability insurance.
friendly liens (appear broke)
land trusts
put it in writing (contracts with partners and others)
did I say don’t do stupid stuff? be aware of fair housing laws (yes, the DO apply), discrimination laws, keep your dog fenced in, keep your pool gate locked, keep your mouth shut (libel, slander), you get the point.
estate planning, prenuptual agreements

A resident agent does nothing for you in TX as ownership must be reported to the state in publicly available filings. In some states it does give you some level of anonymity.

I found this site through Larry Goins brain pick a pro. Very informative and sounds like what you’re talking about.

Thanks for all the advice.

an excellent discussion, although his tax advice is a bit incomplete. thanks.

this question is a pain for me:

with re: to LLC

say i wanted to have someone develop a website for LLC. rather than have LLC pay him for services, what if LLC offered him shares in the comp (membership).

now questions:

  1. would it be more advantageous for the person offering services to do so through his own company and thus, his company would own a % of LLC or is it the same as he, himself, just becoming a member?

  2. what are the IRS issues with this? i keep reading about how if a member does not offer up cash for membership, then that person is taxed as an employee.

I clearly do not fully understand the complexities of these matters and this runs more to my point about people just opening up LLC’s without fully understanding business operations.

basically, I want partnerhips in LLC to advance the company, rather than have money flowing out of LLC to just start it up. (i.e. - LLC would have a website without having to pay a developer cash - but rather it would have the website and services/development needed without costing money NOW…of course later on it would cost money as the more members you take on, the less each receives)

Would an S-Corp be more suited for this - offering shares in return for services rendered for company?

If a person contributes services to an LLC in exchange for a member’s interest, the tax consequences are determined under Revenue Procedure 93-27, 1993-2 CB 343. The contributing member will not generally be taxed so long as he or she receives only an interest in the profits of the LLC. But if the contributing member receives an interest in the capital of the LLC in exchange for past or future services, he or she will be deemed to have received taxable compensation income equal to the value of the capital interest. The LLC will have a corresponding deduction for compensation paid.

so, you can contribute services for membership interest, but subsequent distributions may receive scrutiny.

S-corp is even more restrictive.

so, an interest in the profits of the LLC is different from capital in the LLC?

Here’s what I want to do:

I want to offer an actual Member Certificate to an individual to develop and run our website. Rather than pay for them as an expense (and start up money), I’d like the person to be apart of the team. This way, their contribution to the company will be much greater because they have stake in the company.

so, this particular member’s distributions from capital accounts would be scrutinized?

The alternative is to offer profit sharing of somekind - and no membership per se…is that an alternative…if so, what do you offer them in writing?

Also, I thought, what if I offered to make a loan, personally, to this person and have them then invest that money into business for membership - write on my personal check to them “for business membership” - they sign a promisorry note, deposit the money and write a check to LLC for their membership contribution…