How to structure my LLC

Question

Hi,

I have numerous rentals and rehab them as an owner /builder and do a lot of the work myself but also hire out some of the work. To protect myself I am thinking about making an LLC only for operating the rehabs and paying employees and contractors. The company will exclusively be ran through the LLC, operations, payroll, seperate bank account, etc.  I plan on also getting worker's compensation insurance to cover the employees.

My question is if running the company in an LLC protects me completely if an employee gets injured (in addition to the worker's comp) ? This gets a little tricky and confusing because the work being is on my property which is in my name.  I'm not really looking to create multiple LLC's because it's $1000 per LLC in California and that cuts too much into my cash flow.

Weston Couch · Answer

@Philip Johnson Hi Philip, I have some experience with asset protection for CA residents. Generally, I would avoid creating an LLC in CA altogether due to the $800 annual franchise fee per LLC registered there(imagine if you did have multiple). The best way around this problem is to use a Delaware Statutory Trust (DST) instead. The DST is not obligated to pay the $800 franchise tax mentioned above, and can contain as many assets as you like. The DST is viewed as an estate planning tool, and therefore exempt from the far-reaching corporate tax laws set forth by California’s FTB. A properly set-up DST will both protect your assets and bypass the burdensome franchise tax that would be levied against a Series LLC.

Philip Johnson · Answer

1. Thanks! I got confused reading about DST's yesterday and think it may not be a good fit for me?  It looks like they want $1m net worth minimum in there, excluding your primary home? My properties are worth more than that, but if I sold everything today it would not be the $1m, so I don't know if that qualifies me.

2.  This is good to know.  So, for the operating part of the business hiring employees, I could create an LLC in the state of my preference.  I assume I would need to get the registered agent and virtual office thing offered by websites? Then, I put the WC insurance under that LLC In CA.  Then at taxtime, I just wait to see if the state decides to do anything? Nice!

3.  Good to know, no LLC is required for putting together homes into a Delaware Statutory Trust.

Weston Couch · Answer

@Philip Johnson (1 Yes, not being caught under that net of "any LLC" is how the DST's avoid the FTB requirement.

(2 You could use an out of state LLC to operate and pay labor. While you technically would still be required to register that and pay the $800, in our experience the FTB lacks teeth to enforce that requirement against you in that situation(since they can't dissolve an out-of-state LLC or seize assets(the capital you'd pay the labor with) that's out of state(remember the FTB's jurisdiction stops at CA borders).

3)No, a Delaware LLC doesn't need to act as Trustee, you could do that, but you could also name yourself trustee and receive money directly. Others state's LLC's can also work in that capacity.

Philip Johnson · Answer

Does a Delaware LLC need to be created to act as a Trustee of the Delaware Statutory Trust ? If so, do you need to create business residency in Delaware? (Remote office)

Philip Johnson · Answer

Regarding properties: Thanks, so the Delaware statutory trust would contain my properties ? That sounds great. Since it's not an llc is that how to get away with the California law requiring any LLC doing business in california to pay the franchise tax board fee ? That sounds like we have the assets covered. I'll probably pm you.

Regarding rehab labor: Now for the potential LLC  being established to pay employees helping with rehabs . I don't think there's any way around registering an llc in California and paying the $800 tax but if you do please let me know ♥️🤑 Would doing payroll etc through the LLC protect my assets properly? Would I be a member or member manager ? If it doesn't offer good enough protection since I'm getting workers compensation I don't know if there's even much risk.

Philip Johnson · Answer

I am here to not pay $450/hr thanks Im a diyer

Greg Scott · Answer

Phillip:

You do not sound like the typical beginner scraping by.  It seems you  have a thriving business.  Congratulations!

Wouldn't it be better to get professional advice from a lawyer that specializes in this work and understands you and your business?  Sometimes you get what you pay for.  If it were me, I would seek, and pay for, an expert opinion.

How to structure my LLC

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