Management Company, your input requested on accounting practices

[Mark Updegraff]

Hi All, I recently formed my Management company to separate the liability from the properties themselves. I just want to throw this by you to make sure I'm doing it right. After all, I don't want to end up having the corporate veil pierced!

So this is what I'm thinking. I should have all tenants write a check the Management Company and all rents are deposited into that account.
The management fee is 10% of rent, so that can stay in the management account and the rest is transferred to the respective entities.
Question 1: How can that 10% be disbursed? I'm the manager, but I'm not on payroll. Can I simply transfer it to my personal account to separate my personal finances from that of the business?
Question 2: Does the management company pay the recurring (mortgage, insurance, taxes, fines, etc) out of the management account, or must the management company transfer funds to the owning entity and then a check is cut from the owning entities account?
Question 3: For capital expenditures, can the management company write the check and then bill the owning entity or must that be cut from the owning entities account?
Question 4: once the money is transferred to the owning entities account, can the owners transfer it to their own accounts and spend it or is that a no no?

Sorry, this has been the one area that I've delayed getting set up proper and I'm confusing myself trying to think about it. I just want everything to flow properly so I can separate liability.

Any help would be MUCH appreciated!!

Sincerely,
Mark

[Bill Gulley]

Hi Mark, you need an Escrow Account and that is obtained at the bank and titled ABC, LLC, Escrow Account.

All funds collected from rents are deposited to escrow and then you disburse funds as applicable to each owner and then to the ABC LLC Management Company General Account.

From the general account you can provide book entries for various accounts, manaagement fees earned for example, office supplies, maintenance should be under a seperate account for each property.

Say you're payment a cleaning lady for a unit clean up and the owner pays that expense, you could also disburse funds from the escrow account to the property account in the LLC and then disburse the difference to the owner and pay the lady.

The requirement for an escrow account is not to co-mingle your funds with those held in trust (rent payments) and disburse funds to pay the obligations, expenses or costs to include you fee.

You money is taken out of the LLC from Mark's Drawing Account, just a check written to you, you go deposite it and spend it, it's yours.

You really need to get with an accountant, this is one area that is regulated by your state RE commission, management for others and it requires an RE License. For more info, look up RE Brokers Escrow Accounts. Good luck