S-corp vs. LLC managing enities...asset protection.

Each property I have acquired is placed under an LLC. I have an S-corp owning 1% of each LLC as a general partner and I individually own 99% of the LLC as a limited partner. Is it correct that the judgement creditors would only be able to take 1% of my ownings(rental income, distributions, profit from a sale) located in the LLC’s in the event of a lawsuit?

Wouldn’t it be better to have a single-member LLC acting as the managing corp. own 100% of a single member LLC in which each property would be placed? Thus, if I were sued there would be no “stock” to be taken since the LLC membership is personal property by statute. They would only be able to take any distributions I took out of the LLC’s. If I took no distributions and left everything in the LLC, then they would have to pay tax on that money. If they had control of the main managing LLC, would that freeze up all of my assets contained in all of the LLC’s owned by the managing LLC? Thank you.

If “they” could only take any distributions you took from the managing LLC – via a charging order – then how could “they” take control of the managing LLC in the first place?

LLC’s don’t have “limited partners” and “general partners” LLC’s have “members”. Limited partnerships have limited and general partners.

LLC member liabilities are limited by the fact that it’s an LLC. Period.

LLC membership interest is personal property and cannot be awarded in a judgement. A judgement creditor is limited to a charging order against LLC income (which can be frustrated) only.

Corporate stock is considered an “investment” and as such can be awarded to judgement creditors. Now the creditor owns the company that owns a 1% member interest in your LLC’s.

Is it correct that the judgement creditors would only be able to take 1% of my ownings(rental income, distributions, profit from a sale) located in the LLC's in the event of a lawsuit?

However, technically your statement is correct. The creditor would own 100% of the company that has a 1% membership. Removing such a member would probably be costly. In my opinion having the S-corp needlessly complicates your setup – LLC’s are very secure on their own.

Your understanding of the LLC income charging, distributions and taxation are correct. But, having a single LLC owning all the other LLC’s does nothing other than puts all your eggs back in one basket. This defeats the purpose of an asset protection plan altogether. If they gain a charging order against the “master” LLC, they now charge “all” the LLC’s.

Mark
There seems to be alot of people wanting to do similar things as far as having 1 LLC or S-corp control the rest. What would you suggest is the best setup to manage all of the LLCs or LPs for all of us wanna be Trumps.
It seems that having so many LLCs would be an accounting and managing nightmare without 1 basket to put them all in. :banghead

let’s be clear: you’re talking about management, not ownership.

each LLC has (or should have) a management agreement specifying who is the manager, rights, duties, etc. Make one LLC the manager for the others. One checkbook. One name on contracts, etc. It requires you to have a good bookkeeping system in place, because revenues and expenses for each property have to be reported back to the owner, minus a management fee, of course. In short, treat it as if you had a 3rd party management company.

note that this does not in any way affect ownership.

Dave T. Please correct me on this statement.

I believe I was misunderstanding ownership vs. management. Thanks for the clarification.