All Forum Posts by: Mitchell Zoll

Each member of the series is supposed to be a totally separate entity, and best practice should be to have unique emails for each one. If you are running them all out of a single email account, it will be difficult to establish you have maintained the entities separately if that is a statutory requirement in your state. This is just one example of where the records can be blended -and the difficulty in managing Series LLCs. If the series is truly the best structure for your situation, set up a unique email account/website/contact information for each entity, and then use that information for each separate bank account. 

Use an attorney.  I say that not because I am one, but because I am going through the other side of this process now and I understand the value of their experience and advice.  For context, I handle business formations and transactions and buying and selling businesses all day ... but as I navigate this process, I am using a great estates attorney for these legal issues.  When you engage the lawyer, ask questions, review the documents, then ask questions again. Dig into the "how" of each step: How does the trust operate;  How will the money go in and out of the trust when it is time to use them; etc. The fees you are paying a lawyer should always include an education about how the documents work for you and what needs to happen when they are needed. 

You raise an important point that no one seems to discuss. Series LLCs have been around for a little over 10 years in Texas, but there is very little case law to provide guidance on the Series LLC statutes That's why lawyers often do not recommend them. Read the statute in your state regarding Series LLCs. In Texas, the statute reads that it is a burden on the owner of the Series to prove they have kept their records separate in order to maintain the protections. (For those of you in Texas, read 101.602(b)(1)). The lack of case law doesn't allow any lawyer to provide you guidance on how far a Plaintiff's lawyer can push that statute. It will be very expensive for you to find out.

Lenders, insurers, and other entities don't have to deal with a Series LLC. They may reject your loans or simply require you to do the paperwork to transfer assets to a proper LLC before they work with you. I have worked with clients on transactions trying to use their Series LLC to buy companies or sell portions of their company assets. We end up dumping the Series, proceeding with just a single LLC, and then spend time and money dissolving the series and putting the structure back correctly.

If a Series LLC is really the right entity for your situation, make sure you have a CPA and attorney very involved in your business to keep your records clean and your entity relationships documented.

Hey Bryan

I am in the Northwest Austin area. I help form companies as well as help my clients through asset purchase agreements and agreements to buy and sell LLC membership interests.

I am happy to work with you and your CPA to find the best way to divide up your entities and assets.

I don’t think I can post a link to my website in this chat but luckily I’ve got an easy name to find on google.

Let me know if I can help.

Talk with your CPA ("hello, CPA!") about your plans for the property and have the answers to these (and other) questions ready to go: are you holding to rent or flipping it? Will you add other property to the LLC, and if yes, will they have the same investment profile? Will you bring on new investors? Will all of the investors be individuals or will they try to invest through their LLCs/entities? Will all the distributions be equal to the membership interest or will it be weighted based on other factors? Will you have only one "class" of membership interest or will you have A class, B class, voting/non-voting.

Some of the answers to these questions will guide you on if you CAN make the s-corp election, and some will guide you if you SHOULD to an s-corp election. And make your your answers to these questions match answers for the folks about to give you advice you are about to get on this forum.

Please make sure you understand the legal benefits and risks of a Series LLC before going that path. As for the tax side of the question, your CPA can guide you on the tax benefits and risks before you start the Series LLC, but they should be very involved in your record keeping during the year to make sure you maintain separate records of the Series LLC while they are in operation (read the Texas Series LLC statute regarding record keeping required to maintain separate Series status). You may save on the annual tax bill but spend more on the accounting and legal side during the year. Legally there are some issues as well regarding the states that do and do not recognize the Series and the burden of proof you will need to show to prove they are truly separate.

Also watch the requirements in your jurisdiction regarding the LLC if you have to go to Court. I think LLCs work for most investors if the situation is right, but if you are evicting a tenant or having to handle a matter in court with your LLC, some states require you to have a lawyer represent the entity and you cannot represent the entity yourself (this isn't a bad idea even if it is in your personal name, but just know this going in.).

Be careful with this structure. You may think you are creating "walls" that protect you from liability, but in reality you are creating more work for yourself that could make it harder to maintain that liability. I just worked with a client on an asset purchase transaction and they had so many layers to their business, including a series LLC, they couldn't keep track of the entities that would actually do the purchase. Became a nightmare of work with the bank to close the deal.

Without seeing the agreement, it appears he is charging you because you could cause a future conflict of interest even if you aren't actively working with him on a pending project. I have not seen that in a retainer agreement, but it doesn't mean it doesn't exist. If he has an expertise you need, engage him for that project then terminate the relationship and seek return of the unused retainer. If you like his work and need to use him again in the future, you can always reach out and see if he will let you open the file again. Just don't enter a contract you already know you don't like.  

The number of LLCs per property depends on a number of factors including the investment strategy, the type of property, and the type of investors or loans you'll have for each one. Series LLCs might save you the $300 in filing fees to create a new LLC but the cost and difficulty in maintaining the entity can end up being a lot higher