Parent LLC and Subsidiary LLC no one talks about on BP

[Russell Gronsky]

Hey BP,

Some of you may recall my rant about legal structures and advice from pros in a post a few weeks ago. After reading all the constructive, helpful comments and processing the frustration of working through everything, I decided to figure this out once and for all. I am still in the process of figuring it out but I've read through a ton of threads and blogs that came up in bigger pockets search, internet search and referencing back to what the pros told me. There is one thing in particular that isn't talked about very much: The out of state Parent LLC that owns the subsidiary LLC doing the actual business.

Most threads/blog posts talk about benefits of setting up LLC vs S-corp, or setting up an in-state LLC vs out-of-state LLC. To me, from an asset protection standpoint, it doesn't sound like it matters much if the LLC (or S-Corp) is in or out of state as even an out-of-state entity can be sued in the state where it does business. So evenan NV or WY LLC can be sued in MD, CA or any other state as the court can establish personal jurisdiction fairly easily over your LLC if it owns rentals or flipping in the court's state. So the plaintiff doesn't have to file/travel to the state where your LLC is, in order to sue your LLC. You would also have to set up a registered agent in the state where the LLC does business and pay fees annually.

But, what if you set up a parent LLC in NV or WY and set up a subsidiary LLC in the state where you are doing business? For example, if Jon wants to flip houses in NY and protect his other interests, he can set up a parent LLC in NV and a subsidiary LLC in NY. The NY LLC handles all the flipping business. If someone wants to sue the NY LLC because the house that LLC sold to the retail buyer had faulty electrical, that plaintiff could only go after the assets the NY LLC has, not the NV parent LLC. BUT, if I am understanding this correctly, the plaintiff would have to file/travel to NV in order to sue the NY LLC under NV laws, since the NY LLC is a subsidiary of the NV Parent? Is that right?

If this is correct then this structure seems superior to simply having a single out-of-state LLC (or S-Corp) or an in-state LLC (or S-Corp), however, this seems too good to be true. What am I missing here? Double taxation? Extra tax filings? Something else?

[Caleb Heimsoth]

@Russell Gronsky. I looked into this last summer. (I have owned property in 3 states). It’s not worth the effort unless you’re 1) worth millions and 2) own lots of property (dozens or hundreds of units). Which if you do number 2, you’re probably also number 1) (well off)

However, 99 percent of people on BP do not fit this model. If you don’t fit that model, it’s not worth it at all. Any attorney who wants to sue you will still be able to with all this “protection”.

Look carefully at most of the people who say you need all this complicated stuff and you’ll see their usually attorneys who specialize in it.

I ran all this by my accountant and he told me not to worry about it, unless you’re a person as described above. If you worry about liability, get an umbrella insurance policy