All Forum Posts by: Terry Portier

Well way I see it thus far is if we look at just the legal aspect two words come to mind. "Avoidance" and "Complexity". If I were looking for a black and white answer or some logical reason to form a LLC as Reed says not going to happen as with most law. So to avoid court create as much complexity and avoidance as possible. As we learned it is more difficult to pierce the corporate veil of an LLC that has multiple members and shareholders with complex operations than of a single member-owner-manager with single operation such as land lording. As Reed said, legally bound contracts to the LLC written properly by competent attorneys is "ironclad", makes sense, more logic, more black and white, and I would extend that to the Operating Agreement. Very important stuff!

As for the average REI that thinks they can take such a complex area of law write the OA and contracts themselves, I'd venture to say for the single owner LLC doing only tenant-landlord law and/or flipping the LLC is not worth the paper it is written on and you wasted filing fees at a minimum. A SP would be just as effective maybe more saving legal fees to get out of a mess for one.

Steve, you're further along than I am. I'm start up doing prelim research, looking at a construction company that also invests in RE down the road which may have employees and other complexities, or operations, risk, to make a LLC more appealing. Way I see an LLC now is an illusive firewall between me and a lawsuit, but that may change as I learn more. A legal persona or scare tactic if you will, bullet proof if I find no other way (insurance, etc) to hiring a good attorney spending the money to create ironclad contracts to an LLC or myself(sole propriety) for that matter. Meaning for example, if I were just land lording or somethng simple like that rather than create an LLC I might consider finding a good landlord-tenate contract (or attorney to write one) that releases me of liability to the max extent of state law. I'd find out what that extent is look for it in contract and with an attorney, then stay SP keeping the maintenance up on my properties and avoiding potential law suits. Hide assets and insure them. It would be nice to contract bank loans to an LLC, but as Reed said probably not going to happen until it has assets.

So to answer your question, I don't know yet. I plan on going back over Reeds article and try and apply as much black and white logic as I can to my business plan and requirements then make an educated decision to the best of my ability knowing that can change based on my business model or say five year plan. What I mean by that for example is in the form of legal complexity and assets I could decide in the beginning to go SP and as I gained more legal complexity with employees, stock, assets, partners, etc, form a LLC.

My .02.

Steve, I'm no attorney nor do I give legal advice, but Andrew touched on this a while back when I asked for case references. From what I understand, case law is different than state statue and regulatory laws I have been referencing to above in that IF a case similar to yours has been ruled in favor of a LLC the ruling may be seen as common law overruling statues. It can also be used to persuade a court. You can see from what we learned thus far based on variables between states finding cases from other states may be misleading, an example would be if your state requires you to be represented my an attorney if you have a LLC. If you want case law best place to find it is down at your local district court not out here. You'll also want to make sure that the details of the case match the scenario you are cross-referencing to.

I think Reed statement say's it all, "The short answer is there is no answer" ….Each from of ownership has its advantages and disadvantages each REI will need to look at to determine what fits thier needs from a legal, accounting, tax, and all the other stand points Reed mentions. More than likely that will not be found from someone out here that has a different set of needs and lives in a different state.

One thing is very clear there is a lot of misleading confusion out here, kudo’s to you for not buying into it doing your homework and questioning it. Thanks for the thread I learned a lot myself.

Oh LLC's are easy to form alright, no argument there….I think what was meant by the word "complicated" is spelled out very clearly in MR, Reeds article: LLCs: http://www.johntreed.com/entity.html

Won't take long upon reading this to see how convoluted LLC's are to many areas of the law. I think where they make more sense is bigger companies that sell public stock meaning it is more difficult to pierce to corporate veil. Further, the OA and contract law that binds needs a competition attorney(s) in that area of the law.

Seems to me the first thing to do is to define the business requirements then decide it's complexity and how much money to throw at it, a GP, LP, or LLP might make more sense.

I got this from my local REC office....check out what it says about the #1 disadvantage to LLC's, legally complicated same as MR. Reed said.

http://networkkansas.com/docs/resource-partner-directories/business-organization-and-tax-structure.pdf?sfvrsn=0

Here check this example out and read what it says about the first disadvantage of an LLC most people do not understand but VERY true, and some of you all form multiple LLC's in complexity, hate to see your attorney fees to get out of a law suit. Then look at the other types partnerships that may suit your needs better. I got this from my local REC office.

http://networkkansas.com/docs/resource-partner-directories/business-organization-and-tax-structure.pdf?sfvrsn=0

You might want to check with your Secretary of State, member’s names and contact info is public record and a simple phone call away in my state.

There’s no hiding nor would I consider that an advantage or reason to form, as complicated as the laws are surrounding these things I would think the simplest task an average attorney has is to find the member(s) and owners contact info especially if there is only one.

What I don’t like about Reed’s article is he doesn’t site specific case #’s, although it doesn’t matter a whole lot since he cites some of the many other areas the law that a corporation intertwines to in complexity. Also he does not mention that the plaintiff would also loose attorney fees at a minimum and could face counter law suits to re-couple attorney fees. In the one case he mentions an example of a defendant loosing $160, 000 and summed it to a corporation having no protection, well if the defendant lost assets that been worse and both parties lost attorney fees.

The reason I am thinking it would be a good idea to form a LLC and bind all your legal contracts to it to the best of our ability is to amplify that fear factor and veil such that hopefully when the sue happy society sees the LLC they back off. Reed does say that contracts to the LLC provide "ironclad protection" or at least I'd think better protect than binding contacts to us. What I found by trying to represent myself in court is whether the state requires it or not judges have been attorneys and it's a mark against us when we don't hire one, just legal politics. What I mean by contracts is loans, contractors, management companies, etc. Check state landlord/tenet liability laws or consult a good attorney to decide if you want those contracts with the LLC or corporation or insured under sole propriety. I believe you can look at public records of cases tried, or sit in some cases at you local district court.

Not a lot of trouble to form a DIY LLC just an annual report to maintain it. What can be more troublesome is the operating agreement and contracts requiring a competent attorney, and again I'd look at my assets $$ before I decided to draw up a contract on my own or hire an attorney. Not sure I'd keep a lot of assets in the LLC and how that fits with personal liability insurance policies yet, my next area of research will let ya know. Think I'm done reading LLC law agree with Reed too complex and convoluted.

Steve, I've been on vacation. Great article! My first thought when seeing you had posted is to tell you I am quickly arriving by reading my state laws at what this guy Treed say's, that it is so complex there is no answer or legal protection. I like what he says about LLC's and contracts with banks and in a tort cases where someone is damaged by your negligence where the tort victim never had a contract saying he could not sue personally. Some of that was discussed with respect to management companies and assuming they hold the liability, without a binding contract I did not see how that is true as I said. What he says about active/passive investor sounds spot on and in line with what I posted about companies that have public stock like Ford in his example to be less likely and complex to pierce the corporate veil, vs., the small business person. Agree, from what I seen so far the maintenance for an LLC is incredible and without it you're a ticking legal time bomb. Wow, the rest a real eye opener.

I'm thinking the best thing to do is lots of liability insurance as he said it works to a degree, read the policy thoroughly before buying look for legal ambiguity, vagueness, to the best of our ability. Next form a LLC at the Sec of States office cheap to DIY and maintain it. Any relationship the LLC has with anyone, entity, etc, bind by contract to LLC depending on complexity hire a competent attorney in that area of the law depending on assets $ amount, also try and keep the LLC simple to avoid cost. Not bullet proof but better than nothing.

Thanks,

Terry

Update on my research: I found out that my Secretary Office only records my entity name, address, agent, members not my operating agreement which baffles me since the statues(law) make all kinds of reference to it. Talking with a receptionist there she sees a lot of Attorneys go to their website to create LLC's when that part is very simply and cheap to DIY. I'd also have to file an annual report. We agreed it is the internal Operating Agreement that the need arises to hire an attorney and even they can miss a cross reference to another area of the law.

So I’m back in touch with the Commerce office for some help understanding these statues since the Secretary’s, Attorney General, nor did Legislative Office where the statues reside get a clue.

Wouldn't ya know it, very next Article has to do with the Operating Agreement. I'm beginning to see your LLC is only as good as it, or you may as well be Sole Propriety. Makes you wonder what will happen to the DIY's or that paid a small fee to have it poorly written. Just the thought of ending up in District court and all the $ in that just to get an interpretation is pretty scary! …since way I see it anyway this is the area that really determines, along with law, your personal liability.

17-7672.Interpretation and enforcement of operating agreement.

Any action to interpret, apply or enforce the provisions of an operating agreement, or the duties, obligations or liabilities of a limited liability company to the members or managers of the limited liability company, or the duties, obligations or liabilities among members or managers and of members or managers to the limited liability company, or the rights or powers of, or restrictions on, the limited liability company, members or managers, may be brought in the district court.

This Article the state recognizes the LLC as a "separate legal entity", set forth by the provision in its Operating Agreement I gather. http://www.kslegislature.org/li/b2011_12/statute/017_000_0000_chapter/017_076_0000_article/017_076_0073_section/017_076_0073_k/