What questions do you want answered about using series LLCs?

Question

I am writing an article focused on how the series LLC structure can be used by real estate investors for holding real estate assets.

I would like to find out what questions real estate investors have about using the series LLC structure to hold real estate assets.

Please post all questions, comments and advice below or email me. Thank you in advance for your help!

Bill Gulley · Answer

Well, this is going to be one do'sy of a book since the Series LLC is under state laws and not uniform. What one state may do or allow or how a series is treated may and will be different from state to state. Generalities maybe, but I don't think we can hang our hat on a macro view of Series LLCs to make the business decision that we really need a Series.

Since the nuts and bolts of any LLC lies in the Operating Agreement, the first question is what is the business purpose? Second question is how is that best accomplished? Third question s then, what contingencies can be addressed giving the entity broader powers in operating in different aspects of real estate, investing techniques and the customary "what ifs"?

It's the last matter mentioned that becomes unique to each investor or group of members and it's not so easily duplicated or employed.

Now, if you take the internet's Legal Zip approach, you can have a canned entity that will be more costly in the end due to changes being made along the way and by not understanding the tax implications of what business might be conducted you can simply trash and shut down and start all over again.

Another alternative is how to use other entities as members in a Series, these may become subsidiaries or affiliates. They may also be a managing member. And a common thread is the aspects of an LLC being member managed or manager managed, again, your accountant should be consulted as to your specific choices.

You're taking on a pretty big task trying to cover the ins and outs of a Series LLC on a national stage, most of the information about the basics of operations is on the internet already, your Secretary of State probably gives tips as well as requirements, there are attorney sites that touch on operational aspects unique to industries.

Perhaps the ABC's in general, but advanced areas really need to be addressed on a state level with competent accounting and legal advice, which is why I haven't written the book! LOL :)

Steve Maule · Answer

Advantages of series LLC over traditional business structures covering topics including differences in costs costs, asset protection, actions potentially allowing veil to be pierced, state recognition of various entity structures, etc.

Bradley Clark · Answer

Here's a link to a working draft of the Table of Contents (Google Drive link).

Michael Boyer · Answer

sure...good point on fifty states, seen all fifty here plus some countries....so the variations by state are real and meaningful, so have to think about those....i find the uniform rules, even if passed, begin to morph through judicial decisions in each state anyway.. Part of having fifty sovereigns...

And another one I thought of would be good is some data on lawsuits filed versus those in the category (like residential property owners, etc).

And actual data on due on sale acceleration rates, if any, (though I suspect the industry may be fine holding  performing paper at above market rates and  could hold it patiently until rates rise, and then they are holding below market rate notes, and may suddenly decide it is an issue gunless a state has some waiver case law) essentially making many folks with llc structure left holding callable loans they thought were fixed or locked).. So that is an issue, you need to see you are not just swapping one risk for another by going llc with an encumbered property (may get rid of some liability risk but introduce financial and loan risk).. best of luck

Bradley Clark · Answer

Would you all be interested in collaborating on a Table of Contents on Google Drive? If so, I will set it up and post a link.

Bradley Clark · Answer

Thank you all for the comments.

Bill:

Are you familiar with the Uniform Law Committee's draft of the Series of Unincorporated Business Entities Act? Here's a link to the latest draft from October/November 2015. The ULC has carefully crafted a uniform law for states to consider adopting in an effort to avoid the problems you have identified.

Bradley

Michael Boyer · Answer

just a few I have seen in the forums include: due on sale clause, financing (especially later refinancing and programs not available), representing yourself (say in landlord tenant), continuing need for insurance for duty to defend  (ie to cover legal fees to defend against a case), 50 state survey , piercing veil, merits versus land trust, or benefits over just landlord policy plus umbrella, transaction fees, ongoing responsibilities and formalities to retain protections, etc..probably a few more specific questions too as the bigger pockets audience is varied and pretty sophisticated ....but these are some usual suspects (also search site on terms like LLC or due on sale, asset protection, etc for more...) best of luck and look forward to your piece...

Chris Soignier · Answer

Do you need a separate EIN # for a series that's a single-member pass-through entity?

What questions do you want answered about using series LLCs?

Most Popular Reply