WYOMING LLC REGISTERED IN CALIFORNIA

[Jason Malabute]

I am an investor from Los Angeles. I have properties in Indiana that are in Indiana LLCs.

My lawyer was the one who advised me to make a California LLC which will be the single member of all my Indiana LLCs. I heard today that this structure is useless and still can be pierced in the occurrence of a lawsuit. I heard that the correct way of legal structure should have been a Wyoming LLC registered in California should have been the single member of all of Indiana LLCs. I heard that having a LLC structure of having a Wyoming LLC registered in California as the single member of all my Indiana LLCs serves asa better strategy for asset protection. Is this true? Why?

Lastly, is it true that if you don't do the corporate annual minutes every year then you risk your corporate veil being pierced ? Is this true? why or why not? Thank you. 

[Jerry W.]

@Jason Malabute, I can only speak to what I know about Wyoming law. First Wyoming has a very strong set of statutes and case law supporting that entities that are properly run get liability protection. Corporations are run for the benefit of shareholders, so shareholders need to know what the business is doing, ultimately they are the beneficiary and owner. It doesn't matter if the shareholder and President are the same person, the way you behave should be the same. Do minutes, hold meetings. An LLC is really a partnership that has been given the same liability protection that a corporation gets BUT they get pass through tax status. That is the huge benefit. I cannot speak for any state but Wyoming, but since the owners are usually the operators the rules about keeping minutes are more relaxed than in a corporation. At least in Wyoming not having minutes absent something more is not grounds to pierce an LLC.

You didn't ask this question, but I am wondering, how do you make any profit with every property having the annual $800 or $900 CA corporate tax? I believe that LLCs and corporations if properly operated in many situations give a lot of added protection rather cheaply. The idea of stacking a lot of them together seems rather stupid when you consider the added cost especially for someone from CA. there is a risk that you will die or be involved in an accident every time you drive a car. Does that make you have 3 layers of LLCs to own your car? Does that make you quit driving? Why do you act that way with rental property? Do you hire a bus to drive you from place to place so you won't get killed in an accident because the bus will be safer than a car? there becomes a point where the protection is ludicrous. Do one or 2 LLcs at the most for say a million dollars of property. it depends on your situation. Put 10 of your $50K properties in one LLC, not one LLC for each. Like driving a car, don't drive drunk, don't text while driving, be careful. run your business right, obey the law, have really good insurance. Don't focus so much on a rather small chance of liability that you ruin your total likelihood of success. What is it that you plan to do that is so massively dangerous? Who really pushes the half a dozen entities and land trusts and shell corporations? The people who sell them! No one else does. I finally set down and counted doors for the first time in years a few days ago, and I have over 40. The idea of having 40 entities is insane. I would literally NEVER be able to manage them correctly. Really? Do books for every house? I buy a box of bolts or some tools, or buy an extra stove or fridge at a yard sale what entity do I put it in? If a faucet goes bad and I grab one out of the warehouse who did I bill it to the first time, and how do I change the books to reflect who got it? Really 40 sets of books? Forty sets of minutes? Forty annual filings and filing fees? Granted I have allowed too many to be in one entity and I am now up to 3 entities, but even 3 is a lot more work than one. I do minutes for every place I buy and finance. It takes me 3 hours at least to do my annual filing on my biggest corporation, heaven forbid if I did 30 or 40. I would probably do a separate LLC for every joint venture with a different person, but not for every property. That being said if you need 20 different LLCs to sleep well at night then do it if you can afford it, but look at the really big players. Do you think Brandon Turner or David Greene or Brian Burke have an LLC for every property? I bet not. Why not? Because they would never have the time to really grow real estate if they did one corporation for every property. The next big thing is who runs your business? The guy who unclogs his own toilet or installs his own carpet, etc. really doesn't get that much protection from corporate type entities because he can be personally liable for so many things. Now if you just buy the buildings, hire contractors, and hire property managers the odds are they won't really be able to get to you. One or 2 good entities should do it. Now if you run a bar you better get a lot of entities stacked up and go for the anonymous as much as you can, but real estate not so much. Some states like CA are so incredibly sue happy I get being as careful as you can, but for example in WY it is remarkable different. There will be a lot of states inbetween those 2 extremes. Either way relax, look how other folks are doing it and read and learn. Good luck bud.