LLC Name sufficient for close?

Question

Need to close escrow on a transaction on Monday, October 13. It happened fast. And I need a new LLC to take title with. If I reserve a name officially, can I use that even if the rest of the process is not finished?

Please help.

Bill Gulley · Answer

Welcome Jarrod, you were posting while I was still typing... look forward to your participation here. :)

OP, No, you must file the state requirements for the Articles of Incorporation with your Secretary of State, (An LLC is a corporate entity) you will need the name of the Registered Agent, usually anyone including you. You need a bank account in that company name and an EIN number from the IRS. You need an Operating Agreement, that will show you as a Member and your authority to act, you can also us the Minutes. The Minutes of a corp entity is the written recording of the meetings required or as called by officers and directors. You should have a meeting initially opening the Minutes and prior to large transaction giving the appointed member specific authorization to act on behalf of the entity in that transaction. Call the closing agent, they may not require Minutes and go off the Operating Agreement. You only need that part of the Operating Agreement that pertains to authorizations to act, powers and you don't need to make other parts available that are confidential to members, ie. % of income distributions. Generally, you make this in sections, you can pull a section. Minutes, and/or Operating Agreement, depends on the closer to satisfy them that you are authorized to bind the entity.

You may need a local business license.

Did you sign the purchase contract in that company name? If you signed personally, you'll need another contract or assign that one.

The closer must prepare closing documents prior to closing, they don't like last minute changes and may set the closing off if there are too many changes, the proper name of the buyer and preparing corporate documents with your EIN will likely be too many changes. They need at least a day prior to the closing date to keep them from jumping through their hoops. They may also charge more.

Anything you sign in the name of a company prior to filing corporate Articles successfully, you can be personally liable for.

You need your bank account to deposit funds to be used in the transaction for a better audit trail of your contribution to the company and then it's purchases. If any money comes back to you from settlement, such as a small amount to adjust some expense or credit, those funds must be deposited in that business account. This ensures you don't comingle funds in connection with that transaction.

You need to close using the tax EIN of the business.

The closing agent will show you how to execute documents, ABC, LLC by your name for example.

Can you get all this done in 2 days? Yes, doubt you'll be doing much else, you first need to speak to your accountant and elect the taxation for the LLC, fill out the Articles and file that takes minutes on line, get an EIN number after the Articles are filed, with the EIN you can open the bank account with a small contribution, better just to put all funds in there that will be needed, if it's a large sum you could have clearance issues putting money in an hour before closing and asking for certified funds. Then you can do the Operating Agreement and Minutes as necessary, those are not filed.

Contact the closing agent ASAP, as soon as they get there as they may be doing documents in your name. Ask if you can give them everything on Friday AM, if so, then address the purchase contract getting that done in the company name and sign it, ABC LLC, BY your signature and print your name (or a signature block if you've got a classy operation, LOL).

You'll need a picture ID, like your driver's license.  Copy of filed Articles, Operating Agreement/Minutes, authorization to transact, EIN, bank account, copy of contract they should already have, certified funds and a big smile. :)

Get busy! Good luck!

Jarrod M. · Answer

Alex, I am an attorney, but not a California attorney, so I'll speak generally.  California can be a little quirky at times, so you should definitely contact your closing attorney to help you out.  Generally speaking, just reserving a name is not enough.  For an LLC to exist, most states require a certificate of formation to be filed with the Secretary of State (or some equivalent government entity).  If the LLC is formed in the same state as the property being purchased, then that's typically the only filing you need (along with a fee).  If the LLC is formed in a different state, then the LLC would also need to be qualified to do business in the state where the property is located.  These fillings can be done very quickly in most states (often same day).  Your local attorney should be able to help you out.

The LLC would also need an operating agreement describing how it is managed and how money is shared among members.  If you are investing with others through the LLC, then that document would need to be negotiated, agreed upon and executed.  If you are the sole member, then this document can also be done very quickly.

Bottom line is that there are steps you'll need to take, but if you use an attorney in your area, they can be done quickly and you have plenty of time if you are scheduled to close on Monday.

Hope this helps.

Jarrod

David Krulac · Answer

@Alex Johnson

Here in PA, we can go to the state capital in person and get an LLC on the spot.  There are also LLC expeditors, who are located in the capital who will process your paperwork for a fee.  they often work for attorneys across the state setting up and filling the paper work for LLCs as well as other state registered entities.

Check that out in your state.  There are also firms that will act as your resident agent in that state, if you need that or desire that.

Bill Gulley · Answer

Alex, I agree with Jon's suggestion, it depends on the nature of admitting other members and the number of members to be admitted. I see Jon is in the capital management arena, concerns of those operations are much different than a simple business partnership.

I don't care for foreign corporate entities (out of state) for small RE operations, go with the KISS strategy.

Securities attorneys are expensive and overkill for a small RE partnership under an LLC, I'd suggest finding counsel specializing in corporate or business law, they will generally have a grasp of RE as well as basic securities issues.

Generally, you can admit up to 3 members (2 others) that you have some personal or past business relationship with without concerns. You should look to admitting a partner on a basis of sufficient capital contributions to "buy in", but exceptions can be allowing others to enter based on other contributions that are justified to further the business contemplated.

Check with your attorney, but members do not have to have equal voting rights, you may classify members differently.

Another LLC or business entity may also be admitted as a member, it doesn't have to be a natural person.

You can always amend Articles or your Operating Agreement but it pays to plan ahead and consider where different paths may take you, building in flexibility for operations. Also, pay attention to your stated business purpose, the catch all phrase of "and to do all other things allowed law" may not be seen as usual and customary in some area of RE. An example might be financing sales, leveraging notes, if it becomes a significant aspect of your business you may be falling into another specialized area and be deemed to be operating outside the scope of your declared business purpose. Just suggesting be more specific than saying "transact real estate business". :)

Account Closed · Answer

@Alex Johnson

I would suggest calling your securities attorney and ask him to fast track the setup.  He should be able to do this in a couple of days and likely will setup a Delaware LLC or LP.  These are questions you should be asking your securities attorney not on a board where most are not attorneys and not capable or legally able to give you "legal" advice.

Alex Johnson · Answer

thank you!!

If I end up having to do it later: I could transfer title to an LLC with one member (me) and avoid city transfer taxes. How about if there is one or more additional members to that LLC? Am I missing any thing?

Thanks

Jesse Waters · Answer

I would give your closing attorney or the attorney setting up the LLC a call.  I am not a lawyer, but I would say no.  My understanding is since, the LLC is a legal entity, just like a person is, it would be like doing something in the name of a person who has yet to be born.

LLC Name sufficient for close?

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