To avoid the probate and court, I created a Living revocable trust. Now I am getting into real estate (got tired of working as a software engineer); to protect my asset, I am going with Limited Partnership (LP) (My wife and I) , 98%, and General Partner (GP) is a LLC with 2%. It is considered a good combination in Texas.
I want a 2- members LLC; who should be the members of this LLC?
Howdy Jimmyjoe:
I believe you and your wife could be the members or anyone that you trust.
Tedjr,
Thanx; That means my wife and I can be members of both LP and LLC? Correct me if I am wrong, we buy properties under LP, and if LP gets sued for some or any reason, then the LLC (i.e. GP, 2%) will get hit. We cut the LLC, don’t you think a good lawyer can convince a judge that our LP is just a disguise. We are limited partners of a LP (assuming a well documented LP agreement exists) who are also active general partners as a LLC. I understand that a LLC is a virtual entity, once it is terminated, the Limited partners or creators of LLC should not be liable for any wrong doing of GP. But in this case limited partners and creators of LLC are the same people. Can you shed some light on this?
Howdy Jimmyjoe:
It’s all a disguise. Best idea is to set up several companies. Perhaps with $250,000 equity in each or even one per deal. Buy plenty of insurance to protect yourself too. You can get sued for no reason what so ever. We tried to evict a loud tenant once and all of a sudden she sliped in the tub and filed a suit against us. We finally won but what a hastle.
A lot of investors form a trust to own the property and the LLC is the beneficary of the trust. The trust is like a cloak in that the true ownership is hidden from the public. If they xan not find you they can not sue you.
I do not have all the answers especially in this area. A $250 per hour attorney would be best to help you too. I know there are better ways to set up the LP and LLC. I am not sure it matters who the members are if you get sued, especially if fraud is alleged. A good attorney will find out Big Jimmyjoe is your great aunts second cousin from Alabama with no banjo and not a pot either. If you use bumbs off the street as the owners of the LLC you would be protected but to find them when you need them to cash the checks would be hard.
I do not have enough to protect yet. You are right in not wanting to own this stuff personally. I never want to file personal BK again. I wish knew more years ago when I first started. If you borrow money banks and hard money lenders still want me to sign personally. There is only one way around that and that is to pay cash for each deal. I would still be waiting to do my first deal. Liability is part of the game but you can protect yourself as best as you can. The REIT’s my dad works for has billions in assets all over the country and has several good attorneys fighting in court constantly. Once you have something somebody always wants a free paycheck. There is no right answer to avoid a lawsuit and to protect yourself.
I would not do any business without a lawyer and a CPA. This is a good question for your lawyer. If you don’t have one, go to the most prestigious law firm in your town. If you go to a lesser firm, you find they charge the same of really simular rates. I say that because the big law firms have the best lawyers. They will not give you a partner, you will have a jr. associate. But he will do fine in most issues, because he will have to have graduate high in his class to even be there. Also if he gets stuck, he will walk down the hall to get some advice, and that guy that he asks the question will be one of the best in the world.
You also need insurance if you are worried about being sued. If you have a corporation or not, if you are sued, you have to get a lawyer and fight it. If you are insured, the insurance company gets the lawyer, or they pay.