I started out in the SF arena and moved to multi-family a year ago. all the advice I got pointed to having single asset LLC's for each investment. I also tend to partner up with other investors these days, so the LLC works really well.
The one issue with LLC's is that in order to ensure that the corporate veil is maintained is to ensure the requirements of the LLC are covered every year, and that the LLC is set up correctly. I heard a stat recently that 95% of LLC's would not hold up in court, and would be treated as a partnership by the courts if a lawsuit was filed. A good lawyer can tear down the LLC pretty quickly if everything is not set up and maintained correctly.
The following came off a checklist a got from a lawyer who specializes in LLC's:
1. Have you read and do you fully understand your
Articles of Organization?
2. Have you fully executed and filed your Articles of
Organization?
3. Have you appointed the appropriate members and
managers of your company and had them sign the
appropriate documents?
4. Have you issued Membership Interest Certificates?
5. Do you have a ledger of your Membership Interest
Certificates?
6. Are you holding your annual meetings?
7. Have you given appropriate notice (and kept copies)
of the Meeting of the Managers?
8. Have you kept proper and adequate minutes for the
annual Meeting of the Managers?
9. Have you adopted the Operating Agreement for your
LLC?
10. Do you understand what is covered by the Operating
Agreement and what protection it gives you?
11. Has the LLC secured a Federal Tax ID number from
the Internal Revenue Service with proper address? (May not need to if disregarded entity)
12. Have you made the proper tax election (S Corp.,
Partnership, etc.)?
13. Is your LLC legally doing business in other states?
If so, have you been sure to file all necessary filings in
those states that your company is doing business in?
14. Have you made the appropriate resolutions of the Managers
to authorize and document all major company acts?
15. Have you kept separate books and bank accounts for
the company and yourself, making sure at all times
never to commingle any funds?
16. Are you sure that your tax returns, books of account,
and company records all say the same thing?
17. Are you sure that you have properly documented all
transactions between you and the company, with
resolutions, minutes, etc.?
18. Was your LLC properly capitalized?
19. Have you executed every document that you have
executed on behalf of the company as its manager/
member, to guard against personal liability?
20. Have you documented all major transactions of the company business with resolutions, notes, contracts, etc.?
21. Do you have a resolution documenting the business
purposes for any questionable deductions?
22. Are you current on the above formalities and paperwork?
If you're behind, do you know how to catch up?
23. Has your LLC adopted an expense account form for
official company use that meets IRS guidelines?
24. Does your LLC have an actual physical address, and
the cancelled checks to prove it?
25. Does your LLC have a phone in its own name, and
cancelled checks and statements to prove it?
26. Does your LLC have its own business license?
27. Does your LLC have its own bank account?
I'm not saying that everything in the list is required, however the lawyer that gave me the list says that by making sure you've covered all 27 points there is little chance that even the best lawyer will be able to tear down the corporate veil and expose you to liabilities as a partnership.
One of the biggest issues that I've seen is a properly drafted Operating Agreement. If yours is less than 20 pages it's probably inadequate.
Cheers,
Marc
