DIY LLC?

Question

I have two properties in Indiana that I want protected by a business entity. I live in Virginia so this is out of state. I've spoken with two attorneys to put these properties into an LLC, but they are charging around $1000 to do this (including the state fees). I was wondering if it makes sense when I could go on the Secretary of State's website and create the LLC myself, for much less.

Here are the steps involved as I understand them.

1. Create LLC with state.

2. Get a registered agent in Indiana.

3. Get an EIN for the entity from the IRS.

4. Open a bank account for the LLC.

5. Transfer the properties via a Warranty Deed to the LLC (I'm still fuzzy on how to accomplish this step).

I figure I can save several hundred dollars doing it on my own. Am I missing something? What are the risks?

Cody Backus · Answer

@Todd Krzeminski, your outline of the steps is accurate. The Warranty Deed transfer can be done by a title company or by yourself but because this will be recorded with the county, they have to be very exact and accurate.  PM me if you'd like to know more on this topic.

The biggest thing you are missing in your "steps" is an Operating Agreement (OA).  Brian P. is correct, in that a poorly operated LLC can be pierced, especially if you do not observe the corporate formalities and respect the entity. One disadvantage of setting up an LLC online through the state is you do not get an OA, which is a critical component of the entity.  Many people think the Certificate of Organization of Article of Organization which is provided by the state when you are done is an OA. It is not. The OA acts like bylaws for a corporation and is the governing document for how the LLC operates and behaves. A court may consider that without an OA you were not very serious about how the entity behaves and is governed, which reduces your protection. Even for a single member LLC this is important because the OA dictates how the company and corporate veil can be pierced. Weird I know, but without the OA, your protection defaults to your state statutes and you may not get the protections you need. A good attorney will know how to draft an OA to get you the added protection you need, and can advise you on how to protect the corporate veil. At our firm, we act as registered agent, help our clients have annual meetings and record those minutes, guide them on the commingling of funds, make sure they are signing all their documents as managers or members of the LLC, using the LLC name and bank account when appropriate, not signing personally, etc.

A good attorney can be worth their weight in gold.... but hey, that is easy for me to say because I am one! Hope this helps.

Joshua Bangert · Answer

I've created several LLC's for myself in Indiana. It's very straightforward and costs about $90. It can all be done online as well. I would recommend having a title company prepare the deeds for the transfer and have them do the recording. Worth the few extra buck for the peace of mind.

Jenifer Levini · Answer

@Brian P. can you site a few cases where a lawyer cracked through an LLC? My understanding is that this is extremely rare or never happens.  Or maybe only where an LLC is formed by someone who does not really understand the use and power of an LLC.

Todd Krzeminski · Answer

I didn't intend for this post to turn into an LLC vs. Umbrella discussion. I know all the pros/cons of each approach. This is the direction I'm taking and I'll be sure to follow Corporate Formalities so the veil cannot be pierced.

At this point I'm most concerned about the process of setting up an LLC on my own. It sounds like most people think it's easy enough. I'm curious if anyone's actually done it on their own and run into problems -- something that would have been easily caught by an attorney.

Todd Krzeminski · Answer

@Edward B. To be honest, I'm leaning that way. I'm just trying to convince myself it's the way to go.

Having an attorney as part of my team is probably a better path forward than just saving a couple hundred bucks.

Edward B. · Answer

@Todd Krzeminski,

My two cents is if you are going to set up the LLC, get a good attorney that is familiar with RE, business entities and asset protection. I have paid attorneys lots of good money to set up an LLC that was no better than something I could have set up myself. If you get someone who knows what they are doing, they will make sure that the specific language that you need to actually protect your assets is in the operating agreement. There are some "gotchas" in boiler plate operating agreements that could punch holes in your protection and there are probably some questions that you haven't thought of that a good attorney will know to ask. Again, not all attorneys are created equal, though, so get recommendations and shop around.

Brian P. · Answer

@Jenifer Levini it's not unheard of for an LLC or even an S Corp to be passed through in a suit. Do an Internet search of "piercing the corporate veil". That's the legal term of art. Whether your LLC is strong has less to do with how it is set up than how it is operated. Comingling funds, or using LLC funds to pay for personal items makes it vulnerable.

James Wilcox · Answer

@Todd Krzeminski I personally do what @Brian P. has stated. Basically I go with the philosophy of "whatever helps you sleep at night." @Jenifer Levini I think that is probably true but I have heard of it happening as well. I doubt it is too common though and definitely a lot of LLCs are not set up correctly. There is a big argument either way and both sides have good points.

Pretty sure you could trigger your "due on sale" clause if transferring from your name (assuming what you have) to your new set up LLC. Just depends on the lender though.

Ricky Brown · Answer

Legal Zoom can be a quick fix. I've used them years ago and received all my documents under 30 days I believe.

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