Will multiple LLC's protect me if the worst comes?

Question

This may seem like a new question, but I couldn't find a specific answer on older posts. Sorry if I missed it.

Anyways, if I have 3 separate LLC's and one fails, will the other 2 be protected?

Example:

LLC 1: Worth $45,000 of assets

LLC 2: Worth $200,000 of assets

LLC 3: Worth $150,000 of assets

LLC 1 is sued heavily. Are LLC 2 and 3 completely protected since they're separate assets?

And another question while I'm posting...

Let's say I own a $250,000 home, nice luxury cars, and have plenty of money in the bank. All my LLC's are leveraged on the bank's money. I take a lot of cash flow from my multi-families and pay off my own personal items with the abundance of cash I have, since I'm so rich. *laughs* I'm completely up to date on my pay periods and all, just using the extra cash flow to pay off my personal home and whatnot. Then I get into a situation like Dave Ramsey. $4M worth of assets, owing $3M. So my net worth is about $1M. Reminder, house paid for and all. Then the banks call all their notes and I'm stuck in a situation like Ramsey was.

If all my assets are set through separate LLC's like I described above, will my personal assets be protected if worse comes to worst?

I'm asking because I would like to live practically debt free and use the bank's money (mostly) for my investment purposes. I know I have to put some skin in the game and all, but I'd like to leverage with the bank's money, not my own. What would happen to me in this given situation via the market collapsing?

Jenifer Levini · Answer

@Timothy Metra

Hi, I read through your initial question but not all the answers here.

I'm an attorney. I want to help you change your thinking a little so it will be in line with how a court thinks.

First, an LLC is an entity. Think of it like a person. A person is an entity too.

Now in your situation there are 4 entities: you and 3 LLCs. Each entity holds some assets and has different cash moving through. One entity can lend money to another, or give money to another. Each time money is transferred it is a taxable event.

As long as you pay the taxes each time you take the cashflow out of each LLC, then there is no problem. Keeping fewer assets in each LLC so there is less to go after in case of a lawsuit is a good idea.

However it is important that you never intermingle your own money with an LLC's money. You must not pay for expenses related to the properties held in an LLC with either your personal account(s) or the accounts from any other LLC. Just keep the books completely clean and all monies separate and then your personal assets will be insulated. This is how all the big investors do it and grow rich. They form LLCs for each piece of property. They have a separate set of books for each property. They use the cash flow from each property to pay for itself then the excess is used to pay themselves.

In the situation where a bank calls the note, it depends on the terms of the note. Most banks require a personal guarantee when lending to an LLC. If this is the case, you are still on the hook, personally, for the loans.

Warmly, Jen the lawyer

Dante Pirouz · Answer

Think multiple layers of protection...I suggest looking up "equity stripping"

Andrew Clifton · Answer

@Timothy Metra I believe that's called LLC Series Structuring.It's suggested that you may only want to do this when you have multiple rental properties around 3 or 4. Purchase a rental property Put the property into a land trust and appoint your attorney as the trustee so the public don't see your company name but your attorney name instead. (not to sure if it's just called trust or land trust)Then create your (for example) "abc,LLC"repeat process "def,LLC" that way say one gets sued they can only go after what's in that one llc.Appointing your attorney is for extra protection reasons, no one wants to sue an attorney. Also it depends on your state charging orders of how much that llc is protected. Plus they can't go after your personal stuff if you keep personal and business completely separate. I hope this helps. I advise you to seek advice from an attorney.

Jenifer Levini · Answer

@Timothy Metra   The only time the veil of another LLC could be pierced is if: 1) you were co-mingling money between the LLCs, 2) you were purposely depleting the money and not leaving enough to pay the bills while engorging yourself or other LLCs, or 3) you were involved in criminal activity and especially if the LLC was used to launder money of your criminal activity.

Jen the lawyer

Jenifer Levini · Answer

@Kevin Moen, No. That is classic co-mingling. There is no such thing as "reimbursing." If one entity pays another entity's bills, that could be considered a loan. When the loan is repaid, you should also pay interest to the loaning entity. In your bookkeeping be sure to record the loan and the interest payed on loan payments.

Jace Holt · Answer

Timothy, I am not an attorney and am not qualified to provide legal advice.

Per question 1, it depends on what the "fail" is.  If the LLCs are unaffiliated entities (they do not hold interest in each other), they should be safe from each other.

Some events can pierce the corporate veil. In these events, liability can go "down" to you and "back up" into a separate asset/interest.

Long story short, don't pierce the corporate veil. This could include:

• Personally securing the mortgage loan
• Personally committing a tort or crime
• Commingling accounts, other other finances, or assets
• Failure to properly segregate each entity including yourself

Now I don't know your full story, but based on the size of your LLCs and the way you described your money handling, you may have already created a liability for yourself.

Hope this helps! Best of luck!

Chinmay J. · Answer

Stuff that I have heard from podcasts and posts..

• It is not difficult for judges in some cases pierce the veil of LLC, and lot of times a good insurance policy will protect you from lawsuit than LLC. 
• If you have mortgage on the property, the note could be called immediately, as you transferring the property to LLC triggers the due on sale clause. Although some people say that they don't know a single instance where this has actually happened, if banks tomorrow decide to call some of the older notes when interest rates do rise (and they are already rising), I won't be surprised.

Tom S. · Answer

@Timothy Metra  I can't comment too much on the multiple LLC question and think that's a question best left to an attorney.  Just a quick comment that most banks (conventional lenders) will not lend to an LLC so keep that in mind for your planning.

Also, you mention living "practically debt free" while in the same sentence state you want to use the bank's money for investing.  To me at least, that is taking on debt. You owe the bank money. Please clarify if I'm not understanding that correctly.

Thanks,

Tom

Timothy Metra · Answer

@Jenifer Levini thanks for clarifying. I'm not looking to do anything fishy at all, I would just like to have the ultimate protection through my LLC's. I wouldn't want a domino effect from one going wrong.

Timothy Metra · Answer

Hi, @Jenifer Levini. I understand the concept of an LLC being a completely separate entity, like a person itself. My only concern is if something were to happen to one of my LLC's, would the others be liable? As an example, I own an apartment complex LLC 1 worth $100,000. I get sued for $500,000. Will the insufficient funds of LLC 1 be reimbursed through LLC 2 and 3? Like let's say Donald Trump opens a new LLC tomorrow. He obviously has more money than he puts into that LLC, but gets sued, causing that LLC to go bankrupt. The person suing wouldn't be able to obtain money from his other LLC's, could they? I know it seems like a ridiculous question, but I would think that's the advantage the wealthy use. I mean, if I own 10 houses in separate LLC's and one house completely fails, my other 9 houses shoudln't be at risk! If I own Coca-Cola and Taco Bell and Taco Bell goes bankrupt, debtors can't come after my Coke money, can they? I'm obviously horrible with examples but hopefully I explained that well enough. I would just like to have the ultimate protection if one of my entities were to have the worst happen.

Will multiple LLC's protect me if the worst comes?

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