Where to open Holding Company LLC?

[Gabriel Isaac Hazout]

Hey,

I am planning on purchasing a multifamily property in Jacksonville, FL and one in Nashville, TN within the next few months. I however live in New York, and am not sure of what company structure is best. I would appreciate some advice regarding whether or not I should open the holding company (LLC) in New York or somewhere else.

[Nicholas J. Hancock]

Hi Gabriel, 

The answer depends on how you plan on structuring your business. If you are going to form a Holdings Company that wholly owns another LLC with your property in it (especially helpful if you plan on expanding your empire), then the Holdings Company can be anywhere - preferably a beneficial location for LLCs (WY, NV, etc.) - as long as you don't actively engage the Holdings Company in business activity in the state where the property is located, ie - the holdings company is just collecting the pass through income from the Property LLCs.

But, the Property LLC that holds the actual property most likely will have to be in the state where the property is located because it likely "doing business" in that state - since it sounds like a multifamily rental that needs to be managed, etc. You can accomplish this two ways: (1) by forming the LLC in the state where the property is; OR (2) qualifying a foreign LLC (from another state, preferably an LLC friendly one) to conduct business in the state where the property is located. The latter is more expensive because you are essentially keeping two LLCs open for the use of one, and states sometimes take advantage of foreign LLCs by charging higher fees associated with registration, etc. However, sometimes there may be a benefit for doing it this way. Now of course there are other ways to go about it, but this is probably the norm, at least from my experience. If you are only creating 1 LLC for the property itself that is owned by you, then you still would follow either option (1) or (2) for the Property LLC outline above and skip the Holdings Company, LLC approach.

I'm not familiar with NY LLC laws, but if you went with a Holdings Company approach as the only member of the Property LLCs, using NY as an example it should look like this:

You (and maybe others) are members of -- NY Holdings, LLC ---which is the sole member of the---->FL Property LLC

You (and maybe others) are members of -- NY Holdings, LLC ---which is the sole member of the---->TN Property LLC

Again - try not to "manage" the Property LLC's with obvious signs to the NY Holdings, LLC - keep it clean and safe.

Hope this long-winded answer helps at least a little!

Best of luck! 

Nick