LLC Structure Questions

[Stephen Artzerounian]

Hi all,

So I am starting an LLC with two partners for rental property purposes and feel like I am over thinking the structure.

We will be investing in Connecticut and Pennsylvania my first thought is to use the parent-subsidiary structure. My plan is to create a parent llc and then for each additional property I would create an llc. Properties would then roll-up into the parent.

My main concerns with this structure are:

1. If a CT LLC owns a subsidiary LLC in PA do I have to file as a foreign llc in PA? Would the parent be considered as doing business in PA in this situation?

2.With the parent subsidiary structure, if there were legal issues with the parent, wouldn't the other subsidiary assets then be in jeopardy? Because of this is it advisable to have another separate LLC where we are actually performing all admin functions such as creating and signing legal documents? Or would it be better to have the legal documents signed under the parent llc?

Any and all clarifications/comments are very much appreciated. Been a lurker for awhile and now making my first post. Thanks all!

[Matt Horwitz]

@Stephen Artzerounian, the quick answer to #1 is no and no, and the quick answer to #2 is yes and yes. 

Whichever LLC is going to hold title to the property needs to be formed in the state where the property is located (since that's the jurisdiction in which its legally doing business). So, based on your comment, I imagine you'll have child LLCs in both PA and CT with a parent LLC in CT.

Before forming child LLCs, you'll need to form your parent LLC with you and your partners as members. If the parent company will be in CT, you'll list you and your partners' names in the Certificate of Organization as well as the Operating Agreement.

Then when you form a child LLC in PA, you'll just list the parent LLC in the Operating Agreement, since the PA Certificate of Organization does not ask for LLC member or manager information. Any one of you as individuals can be the Organizer, who is simply the person filing the LLC documents with the state (but is not automatically made a member). Then have the Organizer sign a 'Statement in Lieu of Organizational Meeting' appointing the parent LLC as member. That, along with your Operating Agreement, create you "ownership paper trail".

As long as you create each child LLC in the state where the property is located, you won't have to worry about foreign LLC registration.

Regarding legal issues with the parent: If the parent LLC is used strictly a holding company, you'll mitigate the risk of that entity being sued. You can create another CT management LLC, but some could state that it's overkill. Some might not. Hope that helps a bit.