LLC

[Amy C.]

Met with attorney last night to discuss issues re: first investment. One item was forming an LLC, which attorney said he could do for a bit less that $1000. Today, met with banker (Wells Fargo), and during the course of conversation, he said they do LLCs all the time for their customers, and it only costs the $125 the state of New Jersey charges. Basically, you follow instructions on the New Jersey government website, pay the $125 and you get some type of certificate. Then, go to the IRS website and give certificate info and within a couple of minutes, an EIN is produced...bada-boom, bada-bing...nearly instant LLC (well, more like 30 minutes). Does getting the EIN signify the completion of the LLC formation? Does this sound complete, legit and safe? I really don't want to ask my attorney what makes paying the $1000-ish to him different/worth it, but saving money is always worth an inquiry? Any experiences with this? Thanks!

[J Scott]

A few thoughts on the posts above (much of it reiterating advice already given):

- $1000 for an LLC is ridiculous. As Bill said, the OA is the most important part, but that shouldn't cost $1000 unless you're doing something complicated or have lots of partners.

- The LLC is official when the Secretary of State accepts your Articles of Organization. The EIN number from the IRS just gives you official business status with the IRS and allows you to open a business bank account.

- How many properties you have in each business entity is less of an issue than how much equity you have in each entity. An LLC with one $50K property purchased for cash has more exposure than an LLC with 50 properties all leveraged at 100%.

- As Duncan said, if you manage the properties (or rehab the properties) personally, you may expose your personal assets and other business interests in the case of a lawsuit. To be safe, if you do work yourself, have a separate entity under which you do this work (a PM company you manage or a GC company you manage).

- If you get an umbrella policy, read the policy carefully. It may only be valid if you (or your subs) also carry a liability policy or some other contingency to ensure it's in effect in the situations where you want it to be in effect.

- The whole discussion of piercing the corporate veil is an interesting one, and everyone seems to have an opinion on how difficult it is (most people seem to think it's either very easy or very difficult). I have no idea, and I've yet to see a knowledgable attorney weigh in on the topic,

On top of everything above, consult a good attorney because I likely don't know what I'm talking about.