Is a LLC really beneficial for the small guy ?

Question

First thing that will come to your mind, protection against a lawsuit. Well how about a judge piercing your corporate veil to tap into your assets if he or she wants to. I am asking this question because the LLC in theory is a way to keep your business separate from the owner. Lets look at my case. I am a self employed entrepreneur, and i have three rental properties, 2 are in my personal name, and 1 is a LLC.

I am debating if i should take the 2 that are in my name, and put it in the LLC or quit claim the only LLC and put it in my name, so this would make 3 properties in my name. I know this is called putting all my eggs in one basket.

I know if i am to be sued or if the LLC is to be sued, the insurance policy if going to be targeted. Now what if you have a good homeowners insurance policy with high liability limits, wouldn't that offer the peace of mind ? Also an insurance policies for having a property in a LLC, will cost you about 30 percent more, but if you have it in your name, it will be 30 percent less.

I am unsure of what to do, and i need your experts to share your opinion. Should i put all properties in one LLC , create an an LLC for each property or just put all 3 in my personal name. To date, all of my tenants are A grade people and i never have trouble with them.

Ryan Baker · Answer

Sorry got cut off... My understanding is that in Florida, the courts will view the LLC (again assuming you're the sole owner) as a legal pass through organization and you can still be personally liable even for claims against your LLC. You'll definitely want a strong homeowners insurance policy with an umbrella policy to protect against a personal claim. I am by no means a professional and could be way off, but that's the impression I'm under.

Matthew Kreitzer · Answer

A Judge doesn't just get to "pierce your corporate veil" for the fun of it. You have to be making systemic mistakes in order for them to do that. That is why you always have an attorney help you with incorporation; to explain all the little nuances.

Steve Vaughan · Answer

For me, the decision was all about asset type and investing purpose.I own my little houses personally and carry good insurance. I am a buy and hold landlord mostly.My commercial 5+ unit apt buildings I own in LLCs. Lenders and insurers are good mixing a commercial enterprise with a business entity. Neither mixes well with residential RE I have found.Active income stuff like mgt, flipping, wholesaling, book revenue, labor, etc is done through a separate entity that is or is taxed as a corp or s-corp. SE tax benefits.Not legal or tax advice. Just what I do.

Lucky B. · Answer

you mention great stuff, does anybody know how the courts usually rule in Fl ?

Dan Perrott · Answer

@Lucky B.I am not giving legal advice but I am talking from my experience.All of our properties are split between 2 LLCs. This is done to reduce the "everything in one basket" issue. All properties are in the names of the LLCs. Some investors think they need to put each property in its own LLC - in my case this would be overkill based on how lawsuits are usually handled in the courts in my area.Additionally, we carry good insurance with high liability limits as well as additional business blanket insurance. This is another line of defense. My insurance did not go up because it was an LLC - it remained exactly the same.You need to talk to your legal advisor as to how your local courts handle lawsuits. This can tell you what strategy you should use. For example, the court may limit liability to your insurance policy limits - as is the case with 95% of the cases in my area.But the best defense against legal issues is to run your business at the top level. Have a good tenant screening process, good tenants have less issues. Take care of all maintenance issues on your properties before they become an issue. Have a solid lease that is specific to your location.Now another issue that you need to be aware of is that LLCs are handled differently when processing your taxes. You need to talk to your legal advisor and your tax accountant to guide you through the requirements. It is not that difficult, it is just different from personal taxes. Hope this helps.

Jessica Zolotorofe · Answer

Not even close to true. Single member LLCs in FL are only passthrough for tax purposes. The new LLC act allows foreclosure of 100% of the single member's interest in the LLC, but absolutely still provides protections.

Marcus Auerbach · Answer

Protection against what exactly? It would have to exceed a 1M umbrella policy or the circunstances would have to be that your insurance does not cover because of negligence. Should not be an issue if you run a solid business. If someone gets insured and its not you fault that's what insurance is for. Most cases will be small claims court. An LLC can best case act as a firewall to contain the damage. The bigger your investments and the more equity you have the more likely you will become a traget.

Brian Zoberg · Answer

single member llc in florida offers no protection. this is as of 2015.

Ryan Baker · Answer

In Florida, a single owner LLC provides very little personal liability protection.

Jessica Zolotorofe · Answer

Judges don't get to just choose to pierce the veil. There are very specific laws that govern and piercing is not easy if you manage your LLCs properly, or there wouldn't be hundreds of thousands of LLCs created every year for exactly this purpose. If you happen to get a rogue judge, that's why there is an appellate division.