LLC vs. LP

[Jonathan G.]

What would be a recommended formation in Texas to acquire a property through an limited liability entity that will have limited partners contributing funds and a GP as a manager so that GP can maintain max control and profit/equity allocation may not necessarily tie to cash contributions. thanks!

[Bob Washington]

Disclaimer: I am not licensed in TX and this is not legal or tax advice:

You really need to contact an attorney specializing in working with real estate investors, to structure an entity consistent with your specific tax planning and asset protection goals.

There are many experienced and successful folks on BP giving free advice, which is great. But you need a professional to look at your particular situation, and goals, and structure an entity to help you achieve them. Otherwise, free advice, including mine, is worth what you pay for it….

It is very expensive to setup the wrong structure, and later find that either the formation documents, or operating documents or bylaws -- which can be more important than the formation documents -- did not provide the protection or grant the authorities to do business, you thought it did--

too often, this is discovered after a tenant is suing you, and the tenant's attorney successfully "pierces the company veil" that you thought was protecting you. Once your company veil is pierced, you have no liability protection. So, seek a professional. This is not the time to be cheap.

Additionally, since CA & FL courts have started LIMITING the protections of LLCs, i.e. limiting "charging order" protection for which the LLC was formed, and since the consideration is that other states may follow FL & CA courts, you really need to talk to a tax and asset protection attorney in YOUR COUNTY, to help you PLAN your entity and your business.

Some asset protection attorneys are returning to Limited Partnerships [with INC as general partner, providing the protection and control you desire], which stand up very well when you are sued, and have literally centuries of judicial rulings upholding liability protection, when the LP rules have been followed.

Series LLC is a comparatively new entity structure, which DOES NOT have sufficient judicial rulings to say that it will in the future provide you with the liability protection you need. Yes, many attorneys are “selling†it â€" I went to school with attorneys like these, and the vast majority of the ones I’ve spoken with, do not risk their own personal investment assets with Series LLCs â€" until time determines whether courts honor the protection the new entity structure was created to provide. They’ll happily take your money to set it up for you though, if you request it.

Contact several of the local real estate investment clubs nearest you, and ask for recommendations for attorneys specializing in tax and asset protection entity structure for real estate investors.

Then, INTERVIEW the attorneys, to ascertain that they have the expertise working with real estate investors to structure entities addressing both tax and asset protection needs.

Just my ten cents. Best of luck

Bob