Accounting for multiple LLCs?

[Sharad M.]

Hello all,

I wanted to see how you guys are dealing with accounting issues of owning multiple LLCs? Do you have a separate bank account for each LLC you own? Or you have a main bank account for the primary LLC and use the other LLCs as holding companies only?

I have two LLCs and I own multiple properties in each of them and I am not sure if I should maintain two separate bank accounts or I can use one bank account for all transactions and use the second LLC as a holding company only?

Thanks!

[Tara G.]

Sharad:

We hold properties in one company and use the other to manage them. So all checks come to the managing company, the leases are in the managing company name and there is a contract between holding and managing company. All repairs/ operating expenses are the managing company's and all capital expenses/ mortgage servicing belong to the holding company. The managing company makes regular payments to the holding company.

Now that I am thinking of this, can the experts on the forum comment on this arrangement? Can we do better?

[Mitch Kronowit]

Originally posted by Tara G.:

We hold properties in one company and use the other to manage them... Now that I am thinking of this, can the experts on the forum comment on this arrangement? Can we do better?

I like it and wish I could do it myself, but it's not worth the $800 annual tax to set up another LLC in California simply to act as the "management company" for one of my properties. However, were I to ever get rid of the property managers I currently have for my other properties, then, yes, it would be worth setting up another LLC.

[Bienes Raices]

Originally posted by Sharad M.:

Hello all,

I wanted to see how you guys are dealing with accounting issues of owning multiple LLCs? Do you have a separate bank account for each LLC you own? Or you have a main bank account for the primary LLC and use the other LLCs as holding companies only?

I have two LLCs and I own multiple properties in each of them and I am not sure if I should maintain two separate bank accounts or I can use one bank account for all transactions and use the second LLC as a holding company only?

Thanks!

On a similar note, do LLs need to create two bank accounts per LLC--one for security deposits, one for rents, and expenses, since some states require you to dedicate a bank account solely to sec. deposits?

[Bienes Raices]

Originally posted by Tara G.:

Sharad:

We hold properties in one company and use the other to manage them. So all checks come to the managing company, the leases are in the managing company name and there is a contract between holding and managing company. All repairs/ operating expenses are the managing company's and all capital expenses/ mortgage servicing belong to the holding company. The managing company makes regular payments to the holding company.

Now that I am thinking of this, can the experts on the forum comment on this arrangement? Can we do better?

What is the advantage of this--simply to make bookkeeping less complicated, or does it give some kind of extra asset protection?

It seems to me, with this arrangement, you would still be keeping all your eggs in one basket in the event that you were sued, and you could potentially lose all of the properties if you got a huge judgement against you.

[Mitch Kronowit]

Originally posted by Bienes Raices:

On a similar note, do LLs need to create two bank accounts per LLC--one for security deposits, one for rents, and expenses, since some states require you to dedicate a bank account solely to sec. deposits?

If state says so, then yes, you need a separate account for holding security deposits and nothing else. Even if not a law, it's a good idea and simple enough to do. Simply set up a checking account for your LLC's operations with a corresponding savings account to hold the security deposits. Voila, everything you need right in one bank with one statement.

[Mitch Kronowit]

Originally posted by Bienes Raices:

It seems to me, with this arrangement, you would still be keeping all your eggs in one basket in the event that you were sued, and you could potentially lose all of the properties if you got a huge judgement against you./quote]

When speaking of lawsuits, you should specify if you're talking a "bottom up" creditor or "top down". The LLC only really offers some protection from a bottom up creditor. For a top down creditor, you either need some charging order protection (see your state law) or plenty of insurance or both.

[Tara G.]

Originally posted by Bienes Raices:

What is the advantage of this--simply to make bookkeeping less complicated, or does it give some kind of extra asset protection?

It seems to me, with this arrangement, you would still be keeping all your eggs in one basket in the event that you were sued, and you could potentially lose all of the properties if you got a huge judgement against you.

The tenants cannot sue the owner LLC, since their lease is with the managing LLC, unless there is gross negligence on the part of the owner- we stay away from negligence:-). If we do something to cause someone to sue us individually, well then, LLC offers little protection anyway.

I am not sure what Bottom-up creditr and Top-down creditor means. Can you elaborate, MItch? Thank you!

[Bienes Raices]

Originally posted by Tara G.:

Originally posted by Bienes Raices:

What is the advantage of this--simply to make bookkeeping less complicated, or does it give some kind of extra asset protection?

It seems to me, with this arrangement, you would still be keeping all your eggs in one basket in the event that you were sued, and you could potentially lose all of the properties if you got a huge judgement against you.

The tenants cannot sue the owner LLC, since their lease is with the managing LLC, unless there is gross negligence on the part of the owner- we stay away from negligence:-). If we do something to cause someone to sue us individually, well then, LLC offers little protection anyway.

OK thanks--so I suppose the managing LLC has little or no assets/money contained in it in case it is sued...

Are the members/managers exactly the same people in both LLCs? I wonder if a judge could disregard this arrangement and allow the owner LLC to be sued.

[Bienes Raices]

Originally posted by Mitch Kronowit:

Originally posted by Bienes Raices:

It seems to me, with this arrangement, you would still be keeping all your eggs in one basket in the event that you were sued, and you could potentially lose all of the properties if you got a huge judgement against you./quote]

When speaking of lawsuits, you should specify if you're talking a "bottom up" creditor or "top down". The LLC only really offers some protection from a bottom up creditor. For a top down creditor, you either need some charging order protection (see your state law) or plenty of insurance or both.

Yes I am referring only to bottom up--for an event that occurs "inside" the LLC.

[Tara G.]

MItch, Bienes:

What is Top-down and bottom-up? I havent heard these terms before... Thanks!

[Bienes Raices]

Originally posted by Tara G.:

MItch, Bienes:

What is Top-down and bottom-up? I havent heard these terms before... Thanks!

I believe bottom up refers to something that occurs during the operation of the LLC--tenant gets injured in house and sues, and the tenant/litigant attempts to get at your personal assets (which hopefully should be prevented by the LLC's corporate veil, unless you/LLC acted in a negligent manner).

Top down refers to something outside the LLC that you do as an individual--you are drunk driving, hit someone with your car and they sue--and they attempt to go after your personal assets and possibly the LLC(s)'s assets. Depending on whether the LLC has a charging order (if is is multi-member), they may not be able to obtain your LLC assets. Or they may only be paid in dribs and drabs when a distribution from the LLC is made, so they may agree to a settlement that is in your favor in order to get some money quickly.

[Bienes Raices]

Originally posted by Tara G.:

MItch, Bienes:

What is Top-down and bottom-up? I havent heard these terms before... Thanks!

Actually this chart goes into more detail and explains it a lot more gracefully than I did:

http://www.keytlaw.com/azllc/creditors.pdf

[Mitch Kronowit]

Tara, what Bienes said.

I believe "bottom up" and "top down" creditors are also referred to as "inside" and "outside", respectively. An LLC protects you, personally, from your business. Personal liability insurance protects your business from you.

[Chris Martin]

Originally posted by Sharad M.:

Hello all,

I wanted to see how you guys are dealing with accounting issues of owning multiple LLCs? Do you have a separate bank account for each LLC you own? Or you have a main bank account for the primary LLC and use the other LLCs as holding companies only?

I have two LLCs and I own multiple properties in each of them and I am not sure if I should maintain two separate bank accounts or I can use one bank account for all transactions and use the second LLC as a holding company only?

Thanks!

So to answer the question, each LLC must have its own separate bank account. Each LLC has its own EIN. Each LLC will file taxes independently of each other LLC.

Your bank may allow you to link these LLC accounts to other personal accounts (depending on membership in your LLC, etc.) to facilitate easy transfer of money (capital contributions and distributions)... just keep everything straight for other members and for your tax preparer.

[Bill Walston]

Originally posted by Chris Martin:

Originally posted by Sharad M.:

Hello all,

I wanted to see how you guys are dealing with accounting issues of owning multiple LLCs? Do you have a separate bank account for each LLC you own? Or you have a main bank account for the primary LLC and use the other LLCs as holding companies only?

I have two LLCs and I own multiple properties in each of them and I am not sure if I should maintain two separate bank accounts or I can use one bank account for all transactions and use the second LLC as a holding company only?

Thanks!

So to answer the question, each LLC must have its own separate bank account. Each LLC has its own EIN. Each LLC will file taxes independently of each other LLC.

Not really Chris. There is no requirement that an LLC even have a bank account. One LLC can receive and deposit the cash and make all disbursements for the other LLC's. (There is an IRS requirement that your accounting records properly reflect the income and expenses for each property separately, but that's another issue.) Each LLC will be required to have its own EIN if it is taxed as a partnership or corporation. If you opt for it to be taxed as a sole-proprietorship you may use your social security number or apply for a separate EIN.

[Chris Martin]

Well, I'm not going to argue with you. If the OP never rents his rentals, he clearly don't need a checking account.

Promoting the idea that the OP commingle funds across entities and that this practice is acceptable is very dangerous, IMO.

Getting an EIN is free. Checking accounts are free. Accounting will be easier. I'm looking for the arguement on why someone would not want to implement the best busienss practice (EIN for each entity).