Forming LLC to govern the rest of LLCs

[David Roberts]

This will likely be an easy question for some of you.

So, if I generate 3 LLCs, 2 of which hold 1 rental home in each, and the 3rd which is the main LLC that owns all other LLCs under it...

How do I make that true?  What I mean is, how do I get the hierarchy on paper?  

ABC LLC governs YY LLC and ZZ LLC. But how do I make it on paper so that this is true?

After I create 3 separate LLCs, then how do I get the ABC LLC to have possession and ownership of the other 3?

At the moment I do not have any LLCs created. Do I need to make ABC LLC first, and then if that matters, how do I fill out the articles of organization (or whatever other form is required) to make YY LLC and ZZ LLC a holding?

I'm sorry if I'm confusing the question...

[Brian Burke]

This is my opinion, not legal advice...I agree with the others that are questioning the reasoning for this structure. If you are out there screwing people, they'll find a way to pierce the corporate veil and get to you personally, LLC or no LLC. If you aren't out there screwing people, most of your exposure is from frivolous suits and accidents. That's what insurance is for, so no gain from the LLC here, either. Your biggest exposure is legal fees to defend yourself, not judgments, and having an LLC won't eliminate the need to defend yourself should the occasion arise (and if you get bigger, the need will arise, trust me).

There may be some value in LLCs if you have substantial assets and are concerned about the exposure to those assets resulting from personal negligence. For example, you run over a kid on your way to the grocery store and your insurance limit is exceeded and your millions in real estate is placed at risk.  But...umbrella policies are designed for this type of risk.  Get a big policy.

Your proposed structure would likely result in three tax returns to file and their associated cost to prepare, plus state fees that may be assessed on each on an annual basis. The cost of which likely far exceeds the cost of insurance.

If you are determined to move forward as you outlined, you form the "manager LLC" first, and then the subsidiaries. If your state asks for the names of the manager, the subsidiaries name the "manager LLC". Each LLC needs an operating agreement, and the operating agreements of the subsidiaries would name the "manager LLC" as either the sole member or the manager, and would vest ownership in all of the units in the name of the "managerLLC".

I have the exact structure that you describe, but I have it to seperate equity investors in one opportunity with investors in another. For example, an apartment complex with one set of capital investors is in one LLC, while a portfolio of single family homes with a different set of capital investors is owned by a different LLC, and the LLC's are all managed by another LLC or corporation. It's not about asset protection, it's about segregating a variety of investment structures.

I suggest that you get the advice of a business attorney, CPA, and insurance consultant before you decide on your ownership structure. Beware of the "asset protection" attorneys, and don't make your decisions based on what you hear from well meaning friends, even those of us here on BP.  Good luck!