All Forum Posts by: Jerry W.

@Doug Frisch, welcome to BP bud.  First I agree, consult with a tax accountant on what form of taxing is best for you.  Next the only thing you file in Wyoming is your annual report.  It is usually $50 a year unless you own a lot of property in WY.  Wyoming does not have any state tax.  Best of luck in your investing.

@David Johnston, welcome to BP bud. First where to file will have lots of opinions. Since this is your first property I would just file in the state where you will own the property. Next if the property is already in your name then you simply do a deed from you to the LLC. If there is an existing mortgage on it the lender could call the note due because of the due on sale clause, but very few do. If they throw a fit just deed it from the LLC back to you. I would suggest doing a meeting with minutes showing you are transferring the property to the LLC as a capital share for you, just like you would put cash in to start running a company. If it is just you or you and your spouse that should do it. If there is another different member you should probably set the value and how you will be paid back for it in the future or if the LLC closes. If you wish to buy using an LLC you will need to find a bank to lend you the money to buy in the name of the LLC. All banks I have dealt with make me sign a personal guarantee Typically I pay about 1% higher interest
for the loan for a loan to a corporate entity than if I get the loan in my personal name.  Often when I make an offer on a property I put the offer in my name and add or an entity I have an ownership in.

I would suggest that you open a separate bank account for the LLC that all income and all expenses go through. It is the correct way to operate and it will make your accountant very happy. LLCs are not magic, but they really do help reduce liability. A lot will depend on the nature of a claim or lawsuit and how personally you were involved to see how effective it is. That protection can vary a bit from state to state, but they are authorized by statute so judges follow the statute unless there is a clear violation of how they are operated.

Best of luck to you on your journey.

@Caleb Rehg, the truth is that LLCs do provide liability protection if set up and operated correctly. I have seen several attempts at veil piercing fail. However they are not magic. If you drive the LLC owned car drunk while going to get plumbing supplies you will be sued personally, and the LLC will provide no protection. If you own a house and it has property manager and someone trips over an uneven chunk of sidewalk the odds of you being successfully sued are pretty much zero. Now they may sue you personally, but a Motion for Summary Judgement or Motion to Strike is usually enough to end it. I have even had attorneys drop the LLC members from a suit when served with a prefiling of a Motion for Sanctions. LLCs are cheap in most states, (not all note California) and not all states give the same weight, but all states give some.

There are still drawbacks to using LLCs, like more difficulty in getting loans, or higher interest rates, annual filings, keeping minutes, etc.  Now if you look at the really big dogs on this forum, the ones doing multimillion dollar deals, none of them use their personal names.  It is all in various corporate entities, Corporations, LLCs, limited partnerships, etc.  Not one uses their personal name.  They of course have more to lose than most of us.  Seat belts make us all safer, but not everyone uses them.  They do save lives, but not all lives.  I have taken the seatbelt off both the living and dead in car accidents, but I can tell you they save a lot of lives.  Head on a snow plow and the seat belt makes little difference, slide your car off the road and roll it, odds are with a seat belt you live, if you are ejected because you did not wear the seatbelt you most often die.  Same with LLCs they work in most cases, but not all cases.

@Account Closed, most banks can invoke the due on sale clause despite what lots of Gurus claim, the fact is most banks historically have not cared enough to do it.  Now that the original loan was at 3% and their new loan rate is 8%, on a $500K loan that nets them about $25K more in interest per year the odds of calling are dramatically higher.  There are transfers that banks cannot call a loan due on like the death of the borrower or transferring the property to an trust for estate planning purposes.  My recollection is it like St Garn, or ST. Germain Act.  The one things guys selling or buying under these subject to deals need to worry about is what happens when things go wrong.  Then everyone gets sued.  Have I done some of these?  Yes, but there is a real danger.  I saw one go before a bankruptcy trustee once involved he stepped all over the "subject to" and let the bank foreclose under the relief of stay.  If the bank ever gets in liquidity trouble it is real scary.  They will start calling these things due to try to infuse much needed capital to stay afloat.  Yes banks can hire loads of attorneys too.  Subject to is a viable tool, but it needs to be used with your eyes open to the dangers, and not use them recklessly and do huge damage to some poor seller who thought the worst was over and restarted his life and gets hit with a foreclosure on a house he thought he sold two years ago.  You should always have plan B ready to pay off the mortgage if it gets called.  I had to do that just this year on a 2.5% interest loan and I had to replace it with a 9.25% loan ack!  There is still room for profit, but my margins really shrunk.  Unfortunately this bank was very serious about it's clause, but this one required the borrower to live in the house the entire time that the loan was in effect.  None of us involved really believed they would force going into foreclosure, but we were wrong.  It was some sort of community improvement loan.  Perhaps the bank had liquidity problems.  Anyway, use with caution.

@Fakaradin Floyd, it has been very pleasant following your path, thanks for updating us.  Probably the hardest thing some of us ever do is give ourselves permission to risk failure to succeed.  It takes a lot of courage to act, so just remember you also deserve the victory so don't apologize for your success.  Let that propel you forward at an even faster pace.

@Spencer Douglas, so my first advice is always to try to work the problem out.  If that does not work and they were the cause of you losing money you can always sue them another method is to file a formal grievance with the state Bar in your state and the state where they operate.  Lawyers are held to high degree of care in how the handle the business of clients.  If they fail to file things on time they are often punished by their state BAR association if it is proven.  If you paid them, asked for them to file, and failed to do do it timely you would likely have a very good case.  The bar can also order them to pay restitution to you.  This should never be the first step.  Document trying to work with them, and all conversation oral and written.  I know some folks like @Sarah Kensinger have given good reports, but in the over 10 years I have been on here most comments on Anderson were negative.  They are probably good at what they do, but took on too many clients.  There prices are massively beyond what I see many competent attorney's charge, but that is what you apparently agreed to.  It is unfortunately common for attorneys to take on more than they can handle.  Getting new attorneys up to speed takes time and not all new hires work out.  While their online marketing would not have been legal when I started practicing, it is perfectly legal now.  I don't know what to tell you except if you file with the BAR association they do take it seriously, but the case will be decided on the facts, and my experience is they are usually fair.

@Andi Morgan, you have so many things going on here I don't have time to address them all.

First LLCs are not magic, but they work very well if you set them up and use them them correctly.  Yes you can be sued personally anyway, but more often than not they are dismissed in a Motion for Summary Judgement.  When a state makes a law saying we are giving this kind of protection judges are obligated to follow the law.  There are lots of exceptions, just like how a Dr. treats an injury, they do it like this, unless this happens, or like this if that happens, etc.  They do work, but are not silver bullets.  I was legally sued by a little old lady because I dismissed the criminal charges against her spraying a guy with mace, then hitting him with a taser. I met the "victim" and I wanted to mace him after a two minute conversation.  I had to answer that lawsuit, but the judge dismissed it for a lot of reasons.

You do have problems about how to file your tax returns if you start joining your significant other into existing single member LLCs. All of the same stuff is still put down, but it is on separate filings, not as a schedule, C, D, on your personal 1040. That is an accountant issue you need to work out. What you really need are excellent operating agreements. It is great you are sharing life and finances with another, but what happens when one of you decide to love someone else, or what if one of you goes bankrupt, or even dies? Their children or brothers and sisters may now become your partner, and they don't love you. they just want all the money they can get. You really need things to say what happens when one partner wants out or one dies. How do you set the sellout price? How long do you get to set up a loan to buy them? Who handles the day to day decisions on buying or selling a property if you cannot agree? Are you forever deadlocked? Those should be decided before you add the significant other. Once you add them into the LLC you are married in a very real sense, financially. Hopefully you worked those things out long ago, if not good luck. Resolve while you are still in love. There may never be a problem, but the odds are very high that it could. Either way I wish you good luck and happiness.

For those that are interested intentional undercapitalization is the number one reason for piercing the LLC veil according to the most recent continuing legal education class I had on that subject. There is an inherent fraud in taking a company that makes huge amounts amounts of money and yet has no assets when sued. It is usually tied to an additional fraud as well. There were 38 different tests they showed that various courts used to evaluate whether to pierce the veil, but undercapitalization and fraud were the big ones used most often. You can guess that this is horribly simplified from a four hour class.

@Account Closed, your forgot the folks with substance abuse problems and gambling addictions, and of course those who are really terrible landlords.  I have several who rather sell than go to court over an eviction.

I don't know if this will help anyone since state laws can vary a lot, but I went through a continuing legal education course a few months ago on piercing LLCs, and there was a lot of information and confusion. There are probably millions of LLCs and hundreds of thousands of lawsuits and so no answer is absolute. Here is a very quick summary. There were about 38 different tests they analyzed that judges used in considering to pierce the veil, but not all are given the same weight. The number one criteria used was intentional undercapitalization. So all of those guys saying I keep maximum mortgages on my LLC properties are they main reason to pierce them. You think they cannot see where the money from that mortgage went? That is closely tied to using the LLC to perpetrate a fraud. Those two concepts obviously go hand in hand. Lots of folks like using an LLC to enter into some kind of favorable contract, then sell off the benefit to another company they control, then collapse the obligations of the contract in an LLC shell that has no assets. So without going into 4 hours of droning and hundreds of pages of typing, don't undercapitalize and don't do fraud. The alter ego thing kind of falls into the same area as the two above. If you siphon off your groceries, house payment, credit card bills from the LLC then you intentionally took that money from the business instead of using it to pay bills. Sometimes the accounting is a pain because you didn't keep the books separate so why should the court bother to try to sort it out?

So don't undercapitalize your business, don't use it to do fraud, and keep your finances in decent shape.  While there are other, those are the big dogs, and they make sense.  

Very few courts worried about keeping corporate minutes, as they do not look at LLCs like they do corporations.  I hope this helps a little.  It's nice to see the same high quality of @Michael Plaks that I have seen for so many years and @Basit Siddiqi has always been nice to read.  I am also very impressed by @Account Closed who has few posts but obviously put some real meat in his comments.  Thanks for contributing everyone.