Better to start new LLC? Or use same one?

Question

Hi all, looking to get some sage advice from the BP community...

What is your strategy when it comes to starting new LLCs? My 2 investment partners and I started an LLC for our holdings in KCMO, but we're looking to expand our rental portfolio into a couple other states.

Does it make sense to start a new LLC in each of those states? Or should we simply register the current LLC as a foreign entity in the other states?

At this point, we aren't too concerned with liability as we only have a few SFHs. The larger concern is convenience, ease of management, and paperwork come tax time. I'm assuming having one LLC makes things a lot easier, but want to confirm...

Jessica Zolotorofe · Answer

Definitely makes things easier, but liability even with a few SFHs should be a concern. I wouldn't want more than a couple of properties subject to blanket liability, but if convenience is the primary concern, then yes, a single entity is the easiest.

Basit Siddiqi · Answer

@Cliff T.You may want to consider communicating with at attorney to discuss entity formations/asset protection.One thing to be mindful from a tax perspective is that California may require you to pay $800 for each LLC set up since the managing decisions will be made from CA(assuming you and your 2 investment partners live in CA and will be making decisions within CA).

Daniel Hyman · Answer

@Cliff T.

I would recommend having an attorney assist with the entity formation. Money well spent.

Katie L. · Answer

@Cliff T.

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don’t buy CA property.  This is per entity, so keep that in mind if you form additional LLCs.

Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts.  It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC.  Therefore, if you decide to form just one LLC, it may simplify things if you have it be a CA LLC since you live here, and have all your properties in that one LLC.  Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement.  But, a California LLC is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*This post is informational only and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client or CPA-client relationship.

Cliff T. · Answer

Thanks for the reply! Is it pretty straightforward to register an LLC in one state as a foreign entity in another?

Better to start new LLC? Or use same one?

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