Buying an Owning Entity Instead of Buying the "Properties"

[Andrew Grieb]

BP,

I have a new idea that I would like to get some guidance on. I am currently purchasing a group of single family homes in Western NY; the seller owns them in several LLCs. I always own my properties in an LLC, but rather than establishing new entities in NY, I would like to purchase his entities and therefore not have to transfer the ownership of the properties. I will also avoid going through the hassle of creating new entities in NY that requires "advertising" of the new entities.

I have no idea how to go about researching an existing LLC. I am reasonably certain that all of these LLCs were created specifically for holding rental properties, but I have no idea how to check that they are in good standing with the state, that there are no current legal issues, and that I would not be purchasing pre-existing company problems.

Does anyone have any advice on this?  Thanks.

[Bill Gulley]

You can obtain a certificate of good standing, that only goes to the registration being in good standing. 

Then you need to verify taxes are current and paid, look to the tax filings and cleared payments through the bank account.

Then check with your county clerk as to any legal filings, don't miss any UCC-1 filings. 

Title search all properties.

Give public notice of responsibility for any claims pending against the company, 30 days public notice. That "not responsible for stuff".

Audit the minutes and books of the company, audit operational and any escrow accounts, it's better to leave some money on hand and pay for it, keeps accounts open. Agree to an escrow by the seller to hold for any checks clearing, your agreement can address this that he has personal responsibility for conducting any business 10 days prior to settlement. See your accountant.

Are insurance policies current? Prepare any assignment of owner with the agents.

Any mortgages or other liens outstanding? Change of ownership can cause them to be called without consent. Get payoff for settlement to construct the books as of that date.

You'll need a letter of cooperation required by the seller, that they will provide any information, books, records, assign insurance claims, etc. in a timely manner in the event of future claims and indemnify you of any loss. Be able to offset funds you may owe the seller (like seller financing) for indemnification and/or they have the ability to cover damages.

Prepare change of ownership of LLC(s) with the Sec. of State and mail in as required.

Change signatory authority on all bank accounts prior to settlement and delivered to the institutions.

Check requirements for local business licenses, transfer taxes.

Don't forget lease assignments along with escrowed funds from tenants. 

Ensure your contract covers the transfer of all assets, list personal assets, trade marks, rents, receivables, contracts pending, labor contacts, sales materials, signs, desks and chairs as well as all appliances, assign a value to personal property for depreciation. See you accountant.

Actually, best advise has been given, see an attorney, they will likely tell you not to buy the company!

Tell ya what, I wouldn't buy the existing company(ies) I'd form one LLC and buy all the properties in that one company, Your filing fees and settlement costs would probably be less anyway.

You really want that seller's reputation along with the property? How many tenants has he ticked off over the years. 

Just form your own company and buy, much easier and safer.   :)