How to hold security deposit in LLC'd property?

I tried posting this on a legal forum and didn’t get an answer.

In many states your required to have a separate bank account dedicated only to the security deposit. I was wondering what people on here do, especially if you have multiple LLCs. Do you create two separate bank accts for each LLC (one for rent money & funding, the other just for the deposit), or do you just create one account and put everything in there?

I’m wondering because that’s a lot of bank accounts to manage if you own multiple LLCs and have 2 accts for each one.

You could and probably should set up a separate acct. You could set up a savings acct for this. Check your state laws. In some states, you have to pay back the deposit plus interest on that money. I personally haven’t set up a separate acct yet. I’ll get around to it one of these years.

You can set up a master account with sub-accounts for each deposit, but you will need one for each LLC unless you like giving a creditor an easy way to link them all together. Some banks even handle the 1099 requirements for you.

Because of the size of my business and properties, I am not required by law to set up seperate accounts, but here (in IL), I’ve read there are situations where one would be required to do so.

I just keep good records and know that a certain amount of dollars in my account really equals zero, and I don’t go below that number.


Since a security deposit really belongs to the tenant until it is forfeited, wouldn’t the account you use to escrow the security deposit really be a liability (as opposed to an asset) to the LLC and thus out of creditor’s reach?

If so, then this further reinforces the need to establish an account for security deposits that is separate and distinct from the LLC’s operating capital account.

Yes. My point was that having several LLCs share an account for security deposits links all the LLCs together for liability purposes. Distinct businesses don’t share bank accounts. Each LLC would have a master account for holding deposits. Each master account contains sub-accounts for each tenant’s deposit.

Some states require separate accounts inaccessible to creditors. Assuming state law doesn’t require it and the account isn’t separate, except in some accounting ledger, then the funds are considered an LLC asset. If a creditor seizes the deposit, the LL still owes it to the tenant. Good practice demands a separate account for security deposits.