Wyoming Series LLC - Form series in WY or state doing business?

Question

Myself and two partners have a Wyoming Series LLC. We are just starting out and purchasing a property in PA.

I have consulted several real estate attorneys with differing opinions.

Question. When forming the series (child) LLC, do they get formed in Wyoming or the state we are doing business. What are the advantages and disadvantages?

Example, if series is formed in Wyoming it would have to be registered as a foreign entity in PA. Are the implications when considering asset protection and tax advantages?

Thank you in advance for your replies.

Jason Marino · Answer

There is actually a legal way that you can avoid the foreign filings or creation of a new LLC in Pennsylvania for these properties. It is slghtly more sophisticated than what was described above, but you would use a Land Trust to own each property and the Land Trust would in turn be owned by an individual Series of your Wyoming Series LLC. The individual Series LLC's ownership is limited to a beneficial interest in a Land Trust, and, as such, it avoids the need to register to do business in the other State as it would if the individual Series LLC was a title holder. The Land Trust additionally offers the benefit of another level of anonymity that would otherwise not be provided by an individual Series of a Series LLC, while maintaining the asset protection and compartmentalization of the Series LLC. This strategy has worked for many clients that I have worked with.

Jason Marino · Answer

@David M.Yes, that is accurate. Taking a Lease with the Land Trust itself would undermine most of the anonymity that the structure creates.

David M. · Answer

@Jason Marino well sure. This gets really complex quickly…. But without the third party, the Trust is the owner and would become the entity to rent out the property, right? (Obviously, you wouldn’t want that since it makes the Trust public facing)Thanks

Jason Marino · Answer

@David M.The ideal way of dealing with that type of situation (or almost any interaction with the public) would be to use a 3rd party rental manager or create an entity to become your rental manager or Operating Company. This entity woud have the ability to list the property for rent, enter into leases, evict tenants, hire contractors, etcetera. This model should work in most eviction situations. The idea is to avoid your holding structure do any public-facing activities.

Frank Paladino · Answer

Thank you everyone. I am going to go with forming in the state doing business. Just seems more logical and avoids the annual PA foreign entity fee. In speaking with attorneys there does not seem to be any difference because you are still doing business in PA and subject to PA state laws. PA also only requires annual report filing every 10 years so less expensive that way too.As a follow up question, I have also read different opinions on bank accounts. Again, lots of different opinions so does not seem to be one right answer. Do I need to have a separate bank account for every Series LLC. Much less complicated to just have a single bank account. Some say it breaks the series veil and other say as long as you diligently follow the rules of separate account entries for each Series LLC there is no reason why a single bank account cannot b e used. Thoughts?

David M. · Answer

@Jason MarinoWell, that is interesting... Let me see if I understand. The real property would be purchased and owned by the Land Trust. The LLC would be the Beneficiary and the Trustee. Is that right?Meanwhile, what if one needed to file for eviction? Who or what is the plaintiff? Or, is that a separate issue of who or what is the landlord?Thanks in advance.

Scott Mac · Answer

Hi Jason, Does the land trust: [1] File a tax return? [2] Have an EIN of it's own? [3] Have to have a set of books/chart of accounts/accounting/system? [4] Have it's own separate bank account. AND Are there any Keep alive costs associated with it, such as CPA/Accounting/Tax Prep fees, special government assessments on a trust owning real estate in this way, etc...(???)

David Disraeli · Answer

Hello David, I have formed over 90 series LLCs in Texas and manage one in Wyoming. Wyoming charges $60 plus $10 per series each time (unless you do them all at once) and it must be done on paper. By comparison, TX is $25 and 4 clicks of a mouse! @Frank Paladino is correct, you either start fresh in the foreign state or register your existing entity where you are operating. The advance to using say a TX LLC in OK is that you don't have to obtain another TAX I.D., bank account, or operating agreement. This can become burdensome. As you are aware, some states do not recognize the series structure, however in that case, you form a series in your home state and register the main entity in the foreign state. Unfortunately, no one can promise you how a court in the non-series state would treat your series but as a general rule, they would be duty bound to follow the contours of the state in which the original LLC was formed. I have personally registered Texas LLC's all over the country and don't anticipate any issues. PM me if you'd like to continue the conversation.

David M. · Answer

@Frank PaladinoI think part of the issue is that series LLC's are still pretty new and there is little jurisprudence / case law on their effectiveness and perhaps how to operate...Normally, you see to have the LLC registered in the state that the property resides. LLC's are legal entities formed by State. So, a WY LLC by itself can't purchase a property in another state since it has no legal standing in that State. So, you would either 1) form a LLC in PA in your case and either yourself would be the member/owner or your WY LLC would be the member owner, or 2) register your WY LLC (parent/child, sub LLC, whatever) as a foreign entity LLC in PA. I've heard that foreign entities have had problems in court in someplaces, otherwise its possible, but just extra paperwork since you have to keep up with it in two states.You'd have to find out how a series LLC works across State lines, especially if the State doesn't recognize series LLC. Lets face it, when you are operating in PA, I'd think PA law would govern.This is one of many reasons why using series LLC is cautioned...Sorry I couldn't be more helpful. Maybe somebody else can provide better support.