LLC? Should I put realtor wife as member?

Question

I am forming an LLC for wholesaling and flipping properties in Texas.  My wife will have minimal activity in it other than backing up my comps and listing properties. Should I add her as a member?

PROS

"Business meeting" tax deductions

NOT a single member LLC

She can sign things for me when I'm unavailable

CONS

She is a licensed realtor which would require disclosures to all marketing.  Don't want to get her in to trouble....not that I intend to do anything wrong.

Will buying or selling properties ever require BOTH our signatures?  Or can one member typically sign for the LLC?

I"m on the fence.....Any opinions appreciated.

David Dachtera · Answer

@Mike Landry,

You actually want to avoid having real, human persons own your business entity(-ies) as there is only a single layer of protection between you and "piercing the veil".

Conventional wisdom is to have a trust - with you as the beneficiary, NOT the trustee - be an owner of both your LLC (long term holds) and S-Corp (cash flow, operational functions), and have the S-Corp and LLC be part owner of each other.

That way, piercing one veil just leads to another and then to an even bigger challenge. The idea is to discourage litigation by erecting multiple barriers.

David Dachtera · Answer

We've been there before, Account Closed: NOTHING is 100% You do what you can.

Michael Key · Answer

Disagree Account Closed - while many are right to worry about "piercing the veil"; it's actually something that rarely occurs. Very little case precedence. And something that generally only occurs with gross incompetence, intentional fraud, and criminal investigations.If you setup your LLC and plan on using real estate for money laundering, well guess what...Piercing the veil is not easy. That's why we have these systems. And a good lawyer can help you properly structure your business for maximum protection. And can guide you and inform you of common mistakes and the laws in your area you need to be aware of.I'm not a lawyer, and this isn't legal advice. It's just informed opinion.

Cameron Skinner · Answer

@Mike Landry

if I were you I would just have you as a single member, LLC.

1 - You could still have the ocational business dinner and write it off the rule is "reasonable and ordinary" on meals and entertainment expense for IRS.  Reasonable is what a responsible person would do in similar circumstances and ordinary is what other similar business do.   You can have a business dinner with your realtor, just write on back of receipt what was discussed and keep in your records.

2- the whole single member vs. multi member LLC for liability protection is way overblown, one of my LLCs was sued on a dog bite, as long as it's a bona fide business interest your fine.

3- you can put her on checking account even if she's not a member, and could give her limited power of attorney if she had to sign for a closing.

Hope this helps good luck

Jenifer Levini · Answer

Hi @Mike Landry,

I'm a lawyer in California. I agree with @Matthew Kreitzer that you should avoid embedding entities unless you are working with a lawyer. Not only can you have compliance problems, it can make transferring title more difficult which will make it difficult to sell your properties.

As far as adding your wife, if she will be a part of managing the business then it makes sense to add her. If she is paid by the business, such as a realtor would be for listing properties, then she is not a manager, rather an independent contractor. If she is part of the management, your operating agreement will specify how many people have to sign checks and other operational procedures.

You'll want your operating agreement to be right. You'll want to operate within the rules you set up. Go see a lawyer in your state and have it done properly. This isnt the area to be cheap. This is your shield when things to wrong. Saving a thousand bucks now could cost you a lot more down the road.

Matthew Kreitzer · Answer

This is a standard practice in the state of Virginia at least. The only word of caution I would have is that having multiple layers of protection only adds to your compliance burden. Messing up or intermingling the trust and the LLC could case problems for you before a Court of Law. It would be my recommendation to set up such an arrangement with a locally licensed attorney, and to fully explore the common mistakes business owners make which land them in hot waters.

LLC? Should I put realtor wife as member?

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