All Forum Posts by: Jason Marino

Hi Andrew,

California is going to require that you pay the $800.00 minimum annual franchise tax on any LLC that you own as a California resident. While you might be able to establish an LLC in another State, if California is able to determine that you have an LLC and you have not been paying the franchise tax, the entity could have fines issued against it. Another issue is that if your LLC is doing business in a State, it should be from that State or registered to do business in that State as a foreign LLC. Based on this, a Wyoming LLC should not own a property in another State without registering to do business in that State. If you do not do this, you have a risk of fines, and, even worse, your LLC can be disregarded if it is involved in a law suit in a State that it is not registered to do business in.

Hi Charles,

The structure that you create will depend on your level of risk aversion and the level of maintenance that you are willing to accept. The most risk averse way to create a structure is to place a single asset in its own LLC. This will separate the liability created by each asset, but it will require that you maintain each LLC with a registered agent and any Secretary of State compliance. If you are willing to accept more risk and would prefer less maintenance, you could group multiple properties in each LLC. When you do this, you are placing the assets in the same entity, and an issue that occurs on a single property can affect the other properties in the same LLC. A Series LLC is an entity that can replicate itself into seperate cells. Each of these cells is its own LLC for limited liability purposes, but can have a single maintenance cost under the Parent LLC. This option combines the ability to limit risk with low maintenance cost.

Additionally, something you should consider is the cost of these LLCs as a California resident. California will impose an $800.00 minimum annual franchise tax fee on any LLC that you own. An entity that you might want to consider to legally avoid this cost is a Delaware Statutory Trust. This is a Trust with similar limited liability protection to a Corporation. It operates like a Series LLC and has the ability to replicate itself into cells.

Hi Alex,

I have heard of accountants creating LLCs for clients without any issues. I believe that this may be a fine option for single Member LLCs. However, when you need a custom Operating Agreement with partnership language, you are in a situation where you will likely need legal expertise to create the more detailed document.

Hi Kate,

I agree with the posts above. Generally, the LLC should be from the State that it owns property in or be registered to do business in the State that it owns property in. Additionally, California is going to impose the $800.00 minimum annual franchise tax on any LLC owned by a California resident.

Something that California investors use to avoid this issue legally is creating a Delaware Statutory Trust instead of an LLC. This is a Trust with similar limited liability protection to a Corporation. The difference between the entities is that the franchise tax is not enforced on a Delaware Statutory Trust that owns passive investments, and the maintenance of a Delaware Statutory Trust compared to an LLC is usually not as expensive. The Delaware Statutory Trust is additionally very helpful if you plan on increasing the number of properties that you own, as it has the ability to replicate itself into Child Series Delaware Statutory Trusts, with each of these entities being separate for limited liability purposes and able to hold an asset.

Hi Alex,

There are different ways of structuring a partnership. Creating an LLC, as you suggested, is a good option for this situation. Before starting, you should confirm with your lender that transferring the property to an LLC would not create a due on sale clause violation. After you confirm this, you can create an LLC and transfer the property into the LLC. The LLC should include language related to you and your Brother's partnership. It should specify ownership, control, and how internal disputes will be handled. This can be done by yourself if you are willing to do the research and complete the processes that are necessary. However, it may be easier to work with an attorney if you do not want to spend a significant amount of time on learning the process.

Hi Beth,

I agree with the post above. You should register the foreign LLC to do business in any State that it owns property or create an LLC to own the property in the State. If you do not do this, there is a risk of fines or the LLC being invalidated in a lawsuit.

Hi Brittany,

You can use a rental management LLC and own a property personally. You are separating the liability of interacting from the liability of owning a property. This is done with properties that are owned by limited liability entities as well when the owner uses an Operating Company and a Holding Company. I agree with the post above that you should have a separate bank account for the LLC. It should not matter that the LLC was not created for this purpose initially. Despite this, you should confirm that your Operating Agreement does not include any limitation on the type of business that the LLC can do. To get a bank account, you will need to show the Certificate of Formation (or other similar document), the Operating Agreement, and the EIN for the LLC.

Hi Jay,

I agree with the reply above. You could have a single LLC for each property if you were very risk averse. You could additionally keep the properties in an entity together if you are willing to accept the fact that a lawsuit involving a property could affect the other property. I think that the decision to put a primary residence in an LLC depends on the situation. If you are house hacking the property or rent the property out when you are not there, it may be worth placing the property in a limited liability entity as a result of the liability that it is creating.

Hi Blair,

Sometimes these alterations require an update at the Secretary of State webpage, and other times they need to be made only in the Operating Agreement. It sounds like you have looked into this in detail. In relation to creating an Operating Agreement, you can find templates for these documents, but it will require alteration to be able to conform to your particular scenario. The ideal solution if you are not interested in creating this document yourself would be to have the Operating Agreement drafted by an attorney after discussing your current situation and goals with them.

Hi Lexie,

What you are describing is a Hub and spoke structure. There is a Hub LLC that owns other LLCs. These spoke LLCs own properties. You could structure the Management and Membership of the spoke LLCs in different ways. The Member of the spoke LLC is normally the Hub LLC. The Manager can be you, or you could list the Hub LLC for this. This will depend on how you structured the Hub LLC. It is sometimes possible to get more anonymity for your spoke LLCs by using an anonymous Hub LLC as the Manager.