How To Buy Real Estate With A Self-Directed IRA LLC

Remembering these tips will not only help you make more money, but they'll also keep your friends at the IRS happy!
So I realize you might be wondering...

Why buy real estate investments with a Self-Directed IRA LLC?

A self-directed IRA LLC offers you the ability to use your retirement funds to make almost any type of investment. The IRS permits using this legal entity to purchase real estate or raw land. Making a real estate investment is as simple as writing a check from your Self-Directed IRA bank account.

The advantage of purchasing real estate with your self-directed IRA LLC is that all gains are tax-deferred until a distribution is taken (pre-tax 401k distributions are not required until you turn 70 1/2). In the case of a Roth Self-Directed IRA, all gains are tax-free.

For example, if you purchased real estate with your self-directed IRA LLC for $500,000 and you later sold the property for $800,000, the $300,000 of gain appreciation would generally be tax-deferred.

If you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and probably state income tax as well. (Which obviously sucks.)

Tips For Self-Directed IRA LLC Investing

If you have any questions about investing in real estate with a self-directed IRA LLC, Royal Legal Solutions is here to help you.

Top 10 Features Of The Solo 401k Plan: Empower Your Business

Are you an independent contractor or the only employee of a business you own? If so, you may want to learn about the Solo 401k.

A Solo 401k is a dream come true for small businesses, independent contractors and sole proprietors, such as consultants or freelance writers. A Solo 401k Plan can be adopted by any business with no employees other than the owner(s).

The business can be a sole proprietorship, LLC, corporation, or partnership. The Solo 401k is a tax efficient and cost effective plan offering all the benefits of a Self-Directed IRA, plus additional features.

Solo 401k Features and Benefits

1. Easy to maintain.

There is no annual filing requirement unless your solo 401k plan exceeds $250,000 in assets. If it does you will need to file a short information return with the IRS (Form 5500-EZ).

2. Freedom of choice and tax-free investing.

With a Solo 401K Plan, you will be able to invest in almost any type of investment opportunity, including:

Your only limit is your imagination.
Note: The income and gains from these investments will flow back into your Solo 401K Plan tax-free.

3.You can get a loan.

The Solo 401k allows you to borrow up to $50,000 or 50% of your account value, whichever is less. The interest rate will be the current prime rate. You can use the money for anything you want.

4. No Custodian fees.

A Solo 401k plan allows you to eliminate the expense and delays that come with an IRA custodian. This enables you to act quickly when the right investment opportunity presents itself.

Also, because you can open a Solo 401k at any local bank or credit union you won't have to pay custodian fees for the account as you would in the case of an IRA.

Another benefit of the Solo 401k plan is that it doesn't require you to hire a bank or trust company to serve as trustee. This flexibility allows you to serve in the trustee role. This means all assets of the 401k trust are under your direct control.

5. High contribution limits.

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the solo 401(k) contribution limits are $54,000.  (With an additional $6,000 catch up contribution if you're over age 50.)

Under the 2017 Solo 401k contribution rules, if you're under the age of 50 you can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after tax. The after-tax method is known as the Roth account.

On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.

If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre tax or after tax (Roth). (Up to a combined maximum of $60,000.)

6. Contribution options.

You always have the option to contribute as much as legally possible, as well as the option of reducing or even suspending plan contributions if necessary.

7. Roth contributions.

The Solo 401k plan contains a built-in Roth sub-account you can contribute to without any income restrictions. With a Roth sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

8. Tax deductions can offset the cost of your plan.

By paying for your Solo 401k with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees.

9. Exemption from UDFI tax.

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (UDFI). This means you're going to be paying a lot of money in taxes!

How much is a lot you ask? The UBTI tax is approximately 40% for 2017-2018! Learn more details about this whopping tax penalty from our previous UBTI breakdown.

But, with a Solo 401k plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401k Plan over an IRA for real estate purchases.

10. Rollover options.

A Solo 401k plan can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous employer's 401k plan. Which means you can directly rollover your IRA or qualified plan funds to your new 401k Plan for investment or loan purposes.
Note: Roth IRA funds can't be rolled into a Solo 401k Plan.

Still Using an IRA?

While the IRA is nice and all, it just can't compete. With a solo 401k plan, your business will pay less in tax, and you won't have to deal with the typical IRA restrictions.

Are you interested in learning more about Solo 401ks? Call Royal Legal Solutions at (512) 757–3994 to schedule your retirement consultation today.

What is a Charging Order?

So what's a charging order? I'd like to answer this question with a story.

Let's say I'm a real estate investor (I really am) who has all his properties properly structured inside of an LLC. One day I get into a car wreck.

This results in a judgment against me because it exceeded the limits of the liability for my auto-insurance policy. Because of that they want to try and shake down my LLC.

But they can't touch my LLC.  This is due to the protections that an LLC gives you. It allows your assets to be protected from the personal actions you take in your day to day life. And then of course the charging order comes into play.

How Charging Orders Work

The charging order protects you from creditors. It's not something you get in the mail. In most states, there are 3 things a charging order prevents creditors from doing:

  1. Taking your membership interest in an LLC,
  2. Taking over the management function of your LLC
  3. Force your LLC to sell its assets

In the unlikely event you do lose a lawsuit with an LLC, you'll be okay for the most part. However, you don't just get off "Scott free" (ironically, my name is Scott and I get people off all the time when it comes to lawsuits.)

How a Lien Can Affect Your LLC

What they can do is put a lien against your LLC.  If the creditors put a lien against your LLC, that means any distributions from your LLC to you will go straight to your creditors.

Not to worry, there are ways around a lien if you do ever end up with one against your LLC, or an LLC you have an interest in.
One of the ways to get around a lien is to sell your interest in the LLC to another party. They won't be able to touch the money you gain from that sale, which makes the lien useless.

Make sure you know the laws regarding a charging order before you form one in a specific state. As always when it comes to an LLC structure. some states offer certain advantages and disadvantages.

Fun Fact: The charging order wasn't originally created to protect debtors. It was actually meant to protect co-owners of an LLC from having to work with creditors or a deceased co-owners spouse.

Thanks for reading. If you need assistance with your LLC, contact us today.

What is the Self-Directed IRA?

Do you have an IRA? If yes, you've probably only invested in mutual funds and other types of stock investments. But did you know lot of people that are in the know are now using their IRAs to invest in real estate and other more productive assets? All thanks to the self-directed IRA.

The Self-Directed IRA Basics

As its name suggest, the self directed IRA is an IRA you self-direct, or control. You might think that you control your IRA already. The truth is you don't. Your IRA is controlled by a custodian, and you have a limited choice of investments. You can only invest in things like stocks, bonds and mutual funds.
But by using a self-directed IRA, you'll be able to take complete control of your IRA. You'll be able to streamline the investment process and cut out the custodian, which means no more custodian fees or undue delays. And the best part? You can invest in real estate using a self directed IRA!

The Self-Directed IRA Rules

However, there are certain restrictions that apply to self directed IRA investors. You don't want to violate the IRA rules. (If you do, there are several consequences, including a fine.)
For example, one of these IRA rules is you can't loan money to a disqualified person. Also, there are certain assets that you can't invest in such as artwork, life insurance or collectibles.
Yet despite all these IRA rules, the self-directed IRA is the most powerful investment tool available for an IRA owner. Once you have a self directed IRA, you'll be able to use to invest your IRA funds into highly profitable asset classes with the ease of not having to involve a custodian.
If you have any questions about the self directed IRA, I've written several blog post that should be able to answer all of your questions. To learn more about the self-directed IRA (including how to fund and create one), check out our answers to top self-directed IRA questions. You may also be interested in learning how to buy real estate with your self-directed IRA.
If you have more questions or want to establish your self-directed IRA, Royal Legal Solutions is here to help. Contact us today.

What Makes a Series LLC Different from an LLC?

Have you heard about the Series LLC? It's basically a newer and better version of the normal LLC. Now you might be wondering, what makes the Series LLC different from a normal LLC? Hint: if you have children, you'll catch on fast.

The Series LLC works as if it's a parent-child structure. At the top you have the parent, the Series LLC. It'll have an EIN number and an official formation document stating what state you formed the Series LLC in.

Below the Series LLC you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the children because they all come from the original Series LLC parent. In this way the Series LLC looks like a family tree.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, it can have as many children as it wants, unlike a normal LLC. And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return and its own operating agreement to conduct the business of your JV agreement.

The Series LLC Is More Efficient Than a Traditional LLC

The Series LLC is the next evolution of the normal LLC. Compared to a normal LLC, A Series LLC is:

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

If you have any questions about forming a Series LLC I'd be happy to answer them in the comments below. Learn more about how a Series LLC can help you expand your business. If you're ready to form yours, contact us today.

💸 2 Ways Real Estate Investors Lose Money

Believe it or not, as a real estate investor you can only lose money in two ways.

Think about it. Either you make a bad investment, or someone sues you and takes your hard-earned money. Other then that, you've got nothing to worry about!

As an attorney, and someone who used to sue people, I can honestly say that lawsuits are basically just legalized stealing. Although, sometimes lawsuits are for a good purpose. But usually they're not, especially in the real estate industry.

How Do I Protect my Money & Real Estate?

So remember, getting sued is one of two ways you can lose money as a real estate investor. This means one of the key things we have to do to guard against half of the way we can lose our money in real estate investing is to protect ourselves specifically from lawsuits.

You're able to protect yourself from lawsuits by using an asset protection strategy. An asset protection strategy protects you from lawsuits and anybody looking to try to sue you. It makes suing you a gamble.

But here's a question. Why do real estate investors, or anyone else for that matter, get sued?

Real Estate Investors Are Sued for Their Success

Basically, you get sued because you have money. Someone else will always want your money. If you didn't have any money (or real estate assets that represent money), nobody would waste their time trying to sue you. So the question becomes, "how do I make it look as if I own nothing?"

You do that by using an LLC structure. You put your assets in an LLC, which is then owned by an anonymous trust. Nobody will be able to trace your assets back to you, meaning nobody will be able to sue you.

Another way to protect your money from lawsuits is by creating a series of fortresses (LLC's) to put your assets in. What we do is make each LLC appear low value and difficult to penetrate during a lawsuit. So even if they do penetrate it, they'll get nothing.

Suing you will be seen a gamble. And guess what?

Attorneys Don't Like Gambling on Protected Real Estate Investors

What an asset protection strategy does is make an attorney feel like suing you is the equivalent of going to Las Vegas to gamble. Suing you is usually a gamble for an attorney anyway, since most attorneys take cases on contingency (they don't get paid unless they win.)

Since most attorneys take their cases on contingency, they're playing to win. So there's no way they'll take a case they think they can't win or isn't worth their time.

At Royal Legal Solutions, we make it a gamble for attorneys to come after your money and your real estate investments. And remember, lawsuits are a business. By making it a gamble to sue you, the reality is it won't make business sense to try suing you. They just won't try it.

Your Insurance Company Won't Help You Protect Your Assets

We’ve been trained to believe insurance companies are there to watch our back. The reality is that your insurance provider is a company, just like Nike or McDonalds. They exist because they make more money than they spend.

These insurance companies are more than happy to take your money as long as things are going well. You would never have any reason to doubt their protection until you decide to file a claim...and get dropped! 

Have you ever noticed how people start suing insurance companies every time a natural disaster happens? Why do you think that is?

Now of course, you should have insurance and you should file claims. This is going to work out fine most of the time. But the reality of the situation is that when you file a big claim, they are going to take a second look and see if they can wiggle out of their responsibility to cover you (see our landlord FAQ article for more on this).

You may just find yourself suing your insurance company like the folks after disasters.

Your Insurance Company Won't Protect Your Assets

While everything's fine, your insurance company will take your money. Yet as soon as something happens and you decide to file a claim, you get dropped. The reality of the situation is, if you have a big claim you'll end up having to sue your insurance company just to get them to pay out.

As an investor you shouldn't rely on filing a claim with your insurance company to protect your assets. Sure, they're possibly going to cover the $5,000 slip and fall case that happened on your icy front porch.

But what they won't cover is where the real story is here. Here's an example of a claim that only an asset protection plan will help. Imagine telling your insurance company that grandma fell through the staircase, broke her hip, and now will be permanently disabled for the rest of her life. You'd almost certainly be unceremoniously dropped.

Don't expect their empathy, either. Instead, they're going to say it was your fault grandma fell through the staircase because you should've known there was something wrong. They'll say your claim is a case of "gross negligence", which is your fault and thus outside of your policy limits.

Your insurance company knows they can do this. The fact is, they have millions of dollars to spend on their legal team, whereas most investors only have a few thousand dollars to spend on ONE attorney.

Protect Your Assets By Being Proactive

Instead of relying on your insurance company to protect your assets, be proactive. You worked hard to get to where you are now, don't lose what you've built.

What you need to do is protect your assets with a proper asset protection strategy, incorporating anonymous trusts and LLCs/Series LLCs to keep people from coming after your money. These legal structures will stop lawsuits before they happen.

Asset protection involves making your ownership anonymous, as well as legally limiting your liability. People won't sue you if they think you have nothing worth taking. They certainly won't be able to sue you if they don't know what you own. Doesn't that sound a lot better than filing a claim? Learn more about basic asset protection strategy from the many articles here on the Royal Legal Solutions website.

If you have any questions, just comment below and I'll answer them as soon as I can. If you're not willing to risk everything you've earned on the futile hope that insurance will protect you, schedule your asset protection consultation today.

Doing Joint Venture Real Estate Deals With An LLC

A Joint Venture is an efficient way to pool money, skills and other resources to buy properties. Whenever you do a Joint Venture you'll almost always use a Joint Venture LLC. We'll explain why in this article.

Not only will you pay less taxes on your profits when you use an LLC, but you'll also be protected from lawsuits because the property will be owned by an LLC.

So if anybody were to sue you or your partner, they can't get to your assets.

But using an LLC doesn't guarantee the success of your Joint Venture. Read on ...

Real-Life Real Estate Joint Venture Scenario

Here's a case study. Say you and your friend both own an LLC. Then you both decide to use that LLC for a Joint Venture and buy a house.

Everything is going great, until your friend gets sued. Eventually he or she loses the lawsuit. As a result, a "charging order" is placed against all of your friend's assets. A charging order is something creditors use to collect someones debt. Since you both chose to use an LLC for your Joint Venture, the creditors will be entitled to your friend's share of the profits. Oops!

Now your friend probably won't want to distribute any money from the LLC. Which means you won't be able to get any of your-hard earned money. (As partners, you both have to agree to distribute the money!)

The Best Way To Handle Joint Ventures for Real Estate

This wouldn't have been the case if you both used your personal LLCs to do the Joint Venture.

That might sound confusing, but this is how it works: You and someone else each have your own personal LLC. Then you both use your personal LLCs to become members of another LLC as part of a Joint Venture. That's your Joint Venture LLC.

By being members of an LLC using your personal limited liability companies you'll be able to distribute your share of the money (to your personal LLC) without forcing your partner to pay off their creditors. This way you're both happy and your relationship isn't soured.

I'd be glad to answer any questions you have about using LLCs to do Joint Venture in the comments below. Or you can start with our investor quiz and we'll help you figure out the next step.

Do I Need A Registered Agent for My Out Of State LLC?

Whether you're new to the real estate business or not, if you do business outside of your home state you're going to need an LLC registered agent. Learn more about this requirement and how to satisfy it below.

Why a Registered Agent Is Required For Every LLC

An LLC registered agent is required in every state that it does business. The only reason for the registered agent to even exist is because if someone wants to sue your LLC, and they're not able to get to a member or manager personally to be able to serve them. Then this allows them to serve the lawsuit onto the Secretary of State and be able to have a person that must receive service of process or the lawsuit. Typically, these services are able to be engaged for anywhere from between 40 and $75 per year online. And they're all fungible, meaning that they're all the same, no matter where you go. So I always recommend saying, what's the best deal that you an get, and be able to go with that. My name is Scott Smith, I'm an Asset Protection Attorney at Austin, Texas. I'm a real estate investor, and I wanna help you.

Why Is a Registered Agent Required For My LLC?

The purpose of the registered agent is to receive legal correspondence. So for example, if someone wants to sue your LLC, they'll mail the notices to your agent and not your house.

A registered agent is your LLC's point of contact for all legal matters in the state which it does business. The agent is legally responsible for all of your LLC's tax and legal documents.

So, let's say you formed an LLC in Delaware and you live in Florida. You would be required to get someone (it can honestly be anyone) who is a legal resident of the state of Delaware to be your LLC's registered agent. However, there are some exceptions to this requirement.

A few states allow your LLC to be its own agent. And in most states, you won't have to get an agent as long as you have a physical address in that particular state. (Don't try to use a PO box!)

Also worth mentioning is that you can be your own agent.

Can I Be My Own Registered Agent?

Yes you can! But fair warning: If you decide to be your own registered agent, you will be legally responsible for all of your LLC's tax and legal documents. This may cause you to miss an important piece of mail while you're on vacation or sick, etc.

The advantage in having someone else be your agent is that it removes your legal liability. And in that sense, a registered agent is a form of asset protection. Hiring an agent should cost you between $40 and $75 per year online.

And don't worry, they're all the same no matter where you go. So you won't have to compare anything except price when you shop around for an agent.

What Happens if I Don't Get a Registered Agent?

If you don't get an agent, you may be subject to fines and kept from entering into legal contracts or the state court system in the particular state that your LLC was formed in. Some states will even file criminal charges against you.

If you have any questions about registered agents and LLCs, feel free to ask me in the comments below. In the meantime, learn more about LLCs and the all new Series LLC structure.

If you still have personal questions or want to learn more about Royal Legal Solutions' Registered Agent Service, contact us now.

The Different Kinds of LLCs & The Way They Pay Taxes

Surprise surprise, for every different kind of LLC, there are also different taxes. It's important for you to know the different taxes for each kind of LLC. You want to keep your friends at the IRS on your good side, don't you?
Let's go over the different types of LLCs, along with the taxes you have to pay for each particular LLC.

The Single-Member LLC

The single-member LLC is an LLC with only one member, as its name suggests. The single-member LLC will always have passthrough LLC tax treatment. This means that instead of having to pay the 39.1%  corporate tax, you can include the profits of your LLC on your personal income taxes.

A Married Couple LLC

A married couple LLC is an LLC whose only members are two people who are married to each other. A married couple LLC will usually have pass-through tax treatment. But this isn't the case if the LLC is formed in a community property state.

If your LLC is formed in a community property state, you will have to file a partnership tax return for your LLC. As of 2018, the following states have community property laws: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin.

If you file a partnership return, you and your spouse will have to include your respective share of the profits on your income taxes.

Multi-Member LLC

If your LLC has two members that aren't married, then it's considered a multi-member LLC. A multi-member LLC receives pass-through tax treatment. Each member will claim his or her share of the LLC's profits on their respective personal tax returns.

The Series LLC

If you've read my blog before, you may already know a bit about the Series LLC. The Series LLC allows you to create as many "series" as you want. They operate directly under your original LLC, but are treated separately for liability purposes. When it comes to paying taxes with an LLC, things can get tricky.

For example, in California, each series in a Series LLC will have to pay an $800 franchise tax. But in Delaware, no matter how many series you have in your Series LLC, you'd only pay the $300 franchise tax one time.

Because the Series LLC is fairly new, most states allow you to choose the way it gets taxed. Although as new laws get passed, this may or may not change from state to state.

If you have any questions about the tax treatment of LLC's feel free to ask me in the comments below, I'd be glad to help you! In the meantime, check out our previous posts to learn more about pass through tax treatment.

What Does An LLC Cost? And Is It Worth It For Investors?

People ask us all the time: "Is an LLC's cost really worth it?" This one has a simple answer. Absolutely, and this article will show you exactly why.

Let's be honest here. The cost of an LLC isn't nothing. But I promise you, not setting up an LLC is more expensive in the long run.

Setting up an LLC might cost you around $1000 depending on how much you want done with it. I know $1000 may seem like a lot to pay at first. However, an LLC will pay dividends in the long run. Check out my video:

Setting Up And Properly Structuring LLCs: The True Cost

Setting up and properly structuring LLCs isn't cheap.  However, they pay dividends in the long run.

Asset holding company is where you have a lot of your money tied up. The question becomes, do I really need an operating company? Do I really need the shell corporation for me to do all of my business?

A shell corporation (operating company) allows you to have a face to the world. It limits your personal liability from all of the business dealings that you do. This means real dollars, because a lawsuit against you, even if they can't collect against the assets, will go against your credit score. And with a low credit score, you won't be able to obtain the financing you need to operate your business and acquire property.

We're talking about less than $1,000 to protect your credit score, it's pennies on the future dollars that a bad credit score will cost.

An LLC/Shell Corporation Is Cheaper Than A Lawsuit

If you plan on being in the real estate business for the long haul, (I'm talking 10, 20, 30 years), the cost of an LLC is completely worth it.

On the other hand, no one can afford a lawsuit. The details of a lawsuit are required to be listed in public databases by law. So besides severely damaging your credit score and crippling your business, your reputation will also be jeopardized.

Who's going to want to do business with someone who's been sued before? Think about that.

I hope the above information has helped you. If you have any questions, I'd be more than happy to answer them in the comments below. In addition to being an asset protection specialist, I'm also a real estate investor. I know how it feels to be in your shoes.

If you have questions about what the LLC can do for you, schedule your consultation now.

How To Protect Your Series LLC: Doing Your Part

The Series LLC is an excellent legal structure. Assuming you're doing your part, you don't have anything to worry about. If you don't know about the Series LLC, read this Series LLC Primer now. Then come back for the rest.

Everyone else, keep reading.

Protecting the series structure of an LLC is much like protecting multiple LLCs. Each series of a Series LLC is treated just like an individual LLC.

This is something you need to remember when you're running your LLC business. Let's imagine you hae a Series LLC with five different series underneath it. You have to treat each series as if they were five different LLC's.

Keep Adequate Records To Protect Your Series LLC

There's a few things you need to do to protect your series LLC.

One is you must track the money for each different series separately. You must keep those records as if the series are their own LLC.

You should also consider having separate bank accounts for each series. While this isn't a requirement, having separate bank accounts will make the accounting process so much easier.

What Happens If You Fail To Keep Adequate Records?

What happens is that all your series will be merged together by the court as if they were all one company. This completely defeats the purpose of the series.

It's not that your LLC will completely go away and then you end up with no protection. It's just now all of your money is in one pool. This cripples your asset protection strategy. Remember, the reason you have a Series LLC is to minimize the amount of money anybody can come after at any one time.

Let's say you find yourself in a lawsuit and the court decides to treat all the series you've made as one company. If all of your series get treated as one company you better believe the attorney for the other side is going to do everything in his or her power to win that lawsuit.

After all, the more assets you have for the taking, the more money an attorney can earn from suing you. Then let's say you actually lose the lawsuit. That's the equivalent of someone winning the power-ball, with the prize pool being all of your assets!

On the other hand, if your series hadn't all been merged together, the majority of your wealth and assets would have been untouched.

So remember: keep separate bank accounts, keep adequate records, and make sure you're doing your part!

If you have any questions about what we just went over don't hesitate to ask me in the comments! I'd be glad to help you by answering any questions you have below. If you want to discuss your unique situation, schedule your personal consultation today.

Is Your LLC Easy to Sue or Is it Litigation-Proof?

You've likely heard online from some keyboard warrior or a CPA or perhaps even from an attorney that an suing an LLC is easy. This is absolutely not true.

LLCs are incredibly hard to sue, if not litigation proof, if they are maintained correctly. The problem is that most LLC owners don't do the things necessary to maintain their LLC's legal status. If you don't treat your LLC like an LLC, then when a lawsuit comes around the courts won't either.

Let's go over what you need to do to keep your LLC litigation-proof during a lawsuit.

How To Keep Your LLC Litigation-Proof

The first thing you need to keep in mind is that you must maintain records and accurate accounting of your company. If you don't have a company bank account, you need to get one ASAP. Here are two things you should ask yourself when it comes to your company bank account:

You need to run everything through a bank account for your company to make sure its seen as a legitimate and separate entity from yourself. Bonus: This will also make doing your taxes easier.

You cannot treat your company bank account as if it's your personal piggy bank. This means you have to be careful in the accounting for your company. If you ever take money out of your company account you must keep a record of it as a dividend from your company.

If you fail to do the above, your LLC's legal status will no longer apply. You will be easy to sue. Keep your records on point to keep your LLC protected.

Maintain Accurate Records And Suing Your LLC Will Be Harder

I recommend keeping an eye on your company bank account at all times. Even CPAs can make mistakes.

If you have any questions about what we just went over feel free to ask me in the comments section, I'd be glad to help you. If you've got this down, check out our other posts to learn more about preserving your wealth with an LLC structure.

If you're ready to form your LLC or improve your asset protection plan, we can help you. Schedule your personal consultation today. Our experts can assist with every aspect of company formation, management, and oversight. We're also happy to address your business banking and tax questions.

What's a 'Pass Through Entity' & How Does It Help Real Estate Investors?

A pass-through entity is a business structure, such as an LLC, series LLC, or S corporation. We use the term "pass-through" because you can claim the income of these types of businesses on your personal income tax returns instead of a separate business tax return. Watch the video below and I'll explain:

LLCs Can Function as Pass-Through Entities

The LLC, or Series LLC, has the easiest tax returns for a single member. As a pass-through entity, all of the income from your company can be recorded on your personal income tax return.

That means you won't be taxed twice and or have to pay thousands of dollars to a CPA to file a business tax return. Normally other business structures have to file a business tax return.

Do you and your spouse file joint income tax returns? That's no problem, the above would still apply. But there are some instances where you will have to file a separate return, despite using a pass-through entity. We'll discuss this, and some of the other basics you should know about pass-through entities, below.

The Partnership Return for Multi-Member LLCs

Some states require at least two members in an LLC. Let's say, for example, you and your partner have an LLC. You're going to file what's known as a partnership return. A partnership return is a separate return for the business itself.

Due to the complexity of a partnership return, you're most likely going to want somebody to help you prepare it. I suggest you hire a CPA who is also a real estate investor.

Also note that an LLC is able to be taxed as a corporation. In some instances it can make sense in terms for your operating company to have that LLC taxed as an S corporation. So keep that in mind.

Speaking of real estate LLCs...

Which Pass-Through Entity Is Best For A Real Estate Investor?

The series LLC offers unbeatable asset protection, easy tax filing and is the foundation of a solid asset protection plan.

Say you own 5 properties. Instead of holding all 5 properties in one LLC, with a series LLC you can create a "series" within your LLC. Each series will hold one property.

The benefit of this is if someone sues one of your series and wins, only that one property in that one series will be affected. The majority of your wealth and assets would be protected.

Another great benefit is, no matter how many "series" you have within your LLC, they can all be filed on the same income tax return. This is a huge cost saving benefit you can't get with a regular LLC.

Total Asset Protection: Do What Rich People Do

"Asset protection" may conjure up images of top hat-wearing, cigar-chomping billionaires, but you don't have to be rich to preserve your wealth. You just have to make sure you don't lose what wealth you've earned so far. You especially don't want to lose money due to something unnecessary, such as a lawsuit.

And that's exactly what an asset protection specialist can help you accomplish. By separating your assets and making your holdings anonymous, you'll never have to worry about another lawsuit again. And that's exactly what we're going to talk about today.

Benefits of Investing with an LLC (Limited Liability Company)

A real estate investor who does not use some kind of entity to own their property is risking everything to a single lawsuit. Even worse, if that investor has entered into partnerships with other investors they likely used a general partnership (a handshake.) From an attorney’s point of view this ownership structure is a beautiful opportunity because it exposes the investor. This means a judgement against the investor could take everything.

are your assets covered? donkey photo

No ... We said 'Cover Your ASSETS' ....

Chances are that you have already heard about using an LLC (limited liability company) for asset protection. By forming and operating an LLC properly, assets you place in the LLC are separated from your personal name. If a lawsuit happens, the judgement is limited to the assets within the LLC. Not only does this mean you are risking less in a worst-case scenario, but it also means you are less likely to face that scenario. Why? People will have less incentive to sue you, since you are limiting the potential earnings they could take.

Take a scenario where someone initiates a lawsuit and you lose, but you hold that property in an LLC. The lawsuit would only impact the assets within the LLC. While you could lose that single property to a lawsuit, it is a much better option than losing the property AND your personal assets. The cost of forming an LLC protects your house and other assets from landing in a future settlement or judgement. And this protection scales for investors with large portfolios utilizing entities such as the series LLC.

Setting up an LLC can take anywhere between a few weeks to a couple months, depending on whether the state approves the name you select for your LLC. Once the LLC is formed you will receive an EIN and can set up a bank account. This allows you to operate the LLC separate from your personal finances. You will balance all collections and expenses through the LLC bank account, proving it can operate on its own. When tax season comes around, most people simply have the LLC function file as a pass-through entity.

Preserve Your Wealth with LLCs & Trusts

We have talked about LLCs and the protections they give you when it comes to lawsuits and money-hungry attorneys. But what you might not know is how you can benefit from using LLCs and trusts at the same time.

Did you know that you can actually use trusts to own LLCs? And since trusts are private documents, nobody will be able to find out who owns the trust, or who the beneficiary of the trust is. (You would be the beneficiary.)

What this means is you can own an LLC anonymously. And yes, you can do a lot to hide ownership of an LLC without a trust. But anytime you put a property in an LLC, you're creating a back door for lawyers to walk through and take your assets.

How? Because every property comes with a deed. Your name will be on that deed (most likely).

But when you have a trust you can put the trust on the deed instead of your name and then put that property in an LLC. Nobody will be able to connect your property to your company. And nobody will be able to figure out who owns your company or who owns your trust because the trust is a private document.

Total Asset Protection requires anonymity - man in hoodie

Anonymity is your friend.

Combine a Trust With An LLC For Total Asset Protection

So let me break this down for you real quick. To achieve total asset protection first you establish a trust. Then you file an LLC. After doing both of those you then buy a property using the trust and put said property in your LLC. End of story.  Now you have total asset protection.

Are You A Real Estate Investor? Help Is Available!

Are you interested in learning more about other asset protection plans? Our free resources are here for you to  learn more about asset protection plans. And always remember, if you want to preserve your wealth, don't put all your eggs (properties) in one basket (a traditional LLC).

 

The Three Company Structure For Real Estate Investors

Many real estate investors buy and sell property without a company or LLC. While this is okay for investors with 1 or 2 properties, someone with multiple properties would be better off knowing how to structure a real estate investment company. He or she would be better off using the 3 company structure for tax and asset protection purposes.

Just think, the more properties you own, the more risk you're facing, and the more taxes you're paying. That's why it makes sense to use the 3 company structure, which is made up of 2 LLCs and your operating company, a corporation. Note: if you haven't already, see our info on how to start an LLC.

Three Ways to Use an LLC

  1. Buy & Hold LLC. This LLC is for your long-term rentals and other properties that you expect to hold for longer than a year. We can structure this LLC to make it friendly for long-term capital gains tax.
  2. Fix & Flip LLC. This LLC is for properties you plan on holding for less than a year. We can also structure this LLC to make it tax-friendly for short-term capital gains tax.
  3. Operating Company. The operating company will generally be a corporation. Having an operating company will shield you from personal liability.

By using the three company structure, your assets will be protected and your business will become more tax efficient. When you combine the Buy & Hold LLC and the Fix & Flip LLC, all your assets will be protected.

Now, all that's left are your personal assets. These will fall under the protection of your operating company, preventing liability and the risk of having to forfeit your assets in a lawsuit.

In essence, the three company structure protects you and your assets from lawsuits and allows you to get the most money out of your properties.

Why Should I Use Three LLCs?

If you're wondering why one LLC isn't enough, you're not the first investor to ask that question.

Remember the expression, "Don't put all your eggs in one basket?" Not to mix our poultry metaphors, but with one LLC, you're a sitting duck because all your assets can be found in one place. By separating them, not only will it make a lawsuit less likely in the first place, but you can also rake in more profits from these tax-efficient legal structures.

The name of the game (asset protection) is separation and anonymity. Your LLCs will hold everything that's valuable, and nobody except you will know they exist. Your operating company will exist only to sign contracts and negotiate with clients.

So if anything ever went wrong between you and a client business-wise, they wouldn't get anything if from suing you.

But let's say you don't flip homes. If that's the case, then you won't need a Fix & Flip LLC. The same applies to the Buy & Hold LLC if all you're doing is flipping homes. You could have two of each instead in these situations.

And sure, filing an LLC costs money, but unlike a lawsuit, you won't have to worry about bankruptcy. Get maximum asset protection and tax efficiency with the 3 company structure.

Protect Your Assets With An LLC & Property Management Company

As a real estate investor, your priority is to get a return on your investment. But if someone, most likely a tenant or other business, files a lawsuit against you, your profits and assets will instantly vanish. You have to protect your real estate assets. If you think you can rely on your insurance to protect them, think again. Check out our previous post on why insurance is not asset protection for details on protecting your assets properly.

Would you believe me if I told you there's a new real estate investment method that not only allows you to protect your investments, but also save money and increase your return on investment?

I'm referring to the traditional, single purpose LLC. My new method is simple. First you form an LLC. Then you put your property in it. For each property you have, you form one LLC.

By doing this you'll be able to limit your personal liability and reap tax benefits depending on what state you form your LLCs in. You can form an LLC in any state you choose. Smart investors "shop around" to find the state that suits their needs best.

Let's say you have two LLCs, each one holding one separate property. Note that you can also use a Series LLC for this purpose.

What Happens To My Real Estate Assets If One of My LLCs Gets Sued?

Only the property held in the LLC which is subject to the lawsuit can be used to settle judgments. And that's only if you lose, which is unlikely with me at your side.

But if you do lose your other property will be untouchable, your credit will be safe and nobody will be able to bring down your mini real estate empire.
Protecting your credit is essential. Without good credit you can't get future financing, which means your days of real estate investing will most likely come to an end. One lawsuit can ruin everything you've worked for.

Then there's your family to consider if you have one. By holding your properties in an LLC, you will protect them from the fallout of lawsuits as well.

Using An LLC Alone Won't Completely Protect Your Real Estate Assets

Do you want the greatest level of asset protection? Consider putting your asset protection strategy on steroids by forming a corporation to act as your property management company.

This property management company is completely separate from your LLCs. And for a good reason too!

Let's say you have a contractor or tenant that would sue you. Or anybody else that's in business with your real estate company who would sue you. They would only be able to sue your property management company, because it's separate from your LLCs.

They won't have a single claim against any of your real estate investment properties. This is exactly what you want. If they sue you and win, they'd be lucky to get their legal fees paid. Learn more about how I can  make your real estate investment assets untouchable.

The Series LLC vs. LLC (Traditional): Which Is Better For Investors?

A limited liability company (LLC) is a popular way for real estate investors and other entrepreneurs to file a business entity. The LLC offers owners more flexibility than other types of businesses entities. As its name implies, an LLC also affords owners limited liability that can protect them from incurred debt or lawsuits.

The Series LLC is a type of LLC that has been around since 1996, originally starting in Delaware. The Series LLC has become popular because more and more states are allowing these companies to operate. Similar to a corporate umbrella, a Series LLC has a “parent” LLC with one or more “child” LLCs that are filed beneath it.

How does the Series LLC stack up against the traditional LLC? Keep reading to find out!

Think of the Series LLC as a Parent-Child Relationship

I know that sounds weird. I'll explain.

Series LLCs allow a company to separate and “box” specific assets into various sub-LLCs to isolate them from each other. If a lawsuit is brought against one of the LLCs,  the assets and earnings of the other LLCs are shielded from legal consequences.

Below the Series LLC, you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the "children," because they all come from the original Series LLC parent. In this way, the Series LLC looks like a family tree.

Let's say you have one Series LLC, a company you will form in the state of Texas. When you form a real estate LLC in Texas it will be recognized as a legitimate company inside of that state. However, unlike most LLCs, yours will outline special provisions in its operating agreement.

And it is through these special provisions that your LLC will have the ability to become a series and have "children". By children, I mean companies within a company. Separate, yet equal.

With a Series LLC, you're able to create as many "children" as you want. Each child is known as a series. This is a powerful advantage because each series is treated separately for liability purposes, just as if it were its own LLC.

As an investor, it's important that you do this from an asset protection point of view. As the saying goes, "never put all your eggs in one basket". I personally think the Series LLC is better than the regular LLC.

Series LLC vs. LLC: The Similarities

A traditional LLC and a series LLC follow the same formation regulations. Articles of formation, and any associated fees, must be filed with the appropriate government body. Most states also require an operating agreement. Both versions of the LLC protect owners from liabilities. Additionally, they do not limit the number of stakeholders or owners and permit non-US citizens to take part in the company.

Series LLC vs. LLC: The Differences

Compared to a normal LLC, A Series LLC is:

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

How can a Series LLC reduce startup and ongoing administrative costs? For example, if you file for a traditional LLC in Kansas, the fee is $160. If you file for a series LLC, the master will cost $250 and each series will be an additional $100. If you want to protect three separate assets from debt and litigation, under a Series LLC, this will cost you $450. To get the same protection from a traditional LLC, you would need to file three separate LLC entities, for a total of $480.

Another great advantage of the Series LLC is that it receives one EIN Number (Tax ID), which is filed underneath the company name. (You won't have to use a new EIN number for each series you create.) This allows you to streamline your tax preparation so you don't have to file taxes for each individual company.

Series LLCs are not recognized by every state. Those that do recognize and permit the formation of a Series LLC may have varying laws that dictate how to do so.

Other states, like California, do not permit Series LLCs to be formed but do recognize those legally established in other states.

If The Series LLC is Better, Why Isn't Every Investor Using It?

It comes down to risk tolerance.

Some people think if a series was subject to a lawsuit that it wouldn't be recognized in a state that doesn't formally have a law regarding the usage of series. And if a series isn't recognized in a lawsuit, you'll lose all your legal protection. This means someone's attorney will "go to town" on your assets.

Unfortunately, there haven't been many cases regarding the recognition of a series from state to state. But there are a lot of good reasons and precedent suggesting a Series LLC would be recognized in any state. For example, states already recognize LLCs formed in other states.

At the end of the day, a Series LLC is still an LLC.

Is a Series LLC Too Risky?

You can always form a regular old-fashioned single-purpose LLC. However, these are more expensive than a Series LLC if you're looking to separate your assets.

If you know what the LLC costs, you may be wondering how are they more expensive? Well, you have to pay for the tax preparation for each one of those companies at the end of every year. Then you'll get a nice bill for those LLC fees too. You'll have to pay formation fees, operations fees, management fees, and registered agent fees for each LLC you create.

Those fees will cost you about $1000 every year.

In the end, all you can do is weigh your odds and consider the risk. How do you feel about the Series LLC versus the regular LLC? Let me know in the comments below, I'd love to hear your opinion as a fellow real estate investor.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, so it can have as many children as it wants (unlike a normal LLC). And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return, and its own operating agreement to conduct the business of your JV agreement.

Need Help Deciding Between an LLC vs. A Series LLC?

Royal Legal Solutions can provide professional guidance to help you make the most of your entrepreneurial dreams. Our staff understands the nuances of state laws throughout the United States and Canada. As experts, our experience can help you avoid accidentally violating the various regulations your company may encounter and maintain your limited liability.

The 3 Best States to Form a Limited Liability Company

When forming a Limited Liability Company (LLC), not all states will treat you kindly. What it comes down to is the restrictions and benefits they provide under their jurisdiction. Some states offer more legal protection for a limited liability company, while others offer operational benefits.

So what are the best states for LLCs? I have to tell you, there are plenty of advantages for forming an LLC within your home state. But they will likely pale in comparison to places like Nevada, Texas, or Delaware. You may also be interested in our article, Anonymity & The LLC: States Where Business Owners Love The Laws.

Certain states, like those mentioned above, optimize their internal legislation to be extremely business friendly. And why? Because the filing fees for establishing an LLC generate huge revenue for these states. It's almost like a contest since an LLC can be established in any state whether you live there or not.

Now then, let's go over the 3 best states to form a limited liability company, starting with Texas-—where everything really is bigger (especially the asset protection).

best states for llc

Texas: Low Maintenance LLC Bookkeeping

The main benefit of forming a Texas series LLC is the management fees. Or should I say, the lack of management fees.

LLCs are required to produce a significant amount of legal documentation to be fully covered from an operational standpoint, such as taking meeting minutes.

In Texas, companies can bypass this costly annoyance without losing their legal protection. This will make your life a thousand times easier and also improve your chance of beating a potential lawsuit. (Something you definitely want to make sure you do.)

You can read about Texas LLC laws directly on the state's website.

Next up is Nevada. The place nobody would visit if it wasn't for Las Vegas. (Just joking.)

Nevada: Privacy & Lack of Taxes

Unlike Texas, companies formed in Nevada have two major benefits instead of one. These may seem more enticing than the benefit provided by Texas. However, they're merely operational benefits and do little in the way of fully covering you from lawsuits.

The best thing about forming an LLC in Nevada is the lack of taxes. Nevada LLC's don't have to pay any state level taxes, from corporate to personal.

There's also the privacy to consider. If you form your LLC in Nevada you won't have to disclose who the owners are. Needless to say, many shady individuals form an LLC in Nevada just for that reason alone.

So yeah, you might just want to move to Nevada to do business. You'll get over the year-round heat before you know it. And you might even pick up a gambling habit or two with Las Vegas being so close.

Learn more about forming an LLC in Nevada by speaking with Royal Legal. Anyway, enough talk about glorified deserts Nevada.  Next up is Delaware!

Delaware: Favorable Courts, Legal Protection & Operational Benefits

You may have heard about the excellent business terms provided by Delaware. When it comes to legal protection, the key benefit in Delaware is the Chancery Court.

The judges presiding over this court specialize in business law and are known to provide fair rulings. Just remember this won’t help you if you don’t have proper legal coverage or haven’t maintained your records correctly.

Also worth mentioning is that Delaware provides some of the same operational benefits as Nevada. You can learn more about forming an LLC in Delaware on the state's handy website.

So which state do you think is best for forming your LLC? Tell me in the comments below, I'm always interested in hearing your perspective!

Do you need personalized advice on the best state for forming an LLC? Get in touch with us! Or see my article on the Best States To Form LLCs for Real Estate on BiggerPockets.

Which One Protects You More From Lawsuits: An LLC or The Series LLC?

If you've got money, people want it. Lawsuits are one of the easiest, yet still legal, ways to get your money. The more money you have the more likely it is someone will try to take it from you in a lawsuit. The same applies to your LLC if you have one.

The more money or equity you have inside your individual LLC, the more attractive it's going to be for someone to sue you. And when they do, all of your assets will be caught under one legal net.

That's why, compared to an LLC, a series LLC offers far more protection for you and your assets when it comes to lawsuits.

The series LLC allows you to "compartmentalize" assets. Which simply means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk. I've already written a lot about the series LLC, you're welcome to read about them here. You can also read about what the IRS thinks about an LLC here.

Today I'd like to answer a question I've never answered before, at least on this blog. I know you might be wondering...

How Much Money Will Setting Up a Series LLC Cost Me?

Our pricing packages for setting up either an LLC or Series LLC at Royal Legal Solutions range from $850 to $4000.

So why should you bother paying for an LLC when you technically don't need to have one? I hate to answer a question with a question, but I've got no choice this time! Ask yourself this: Would you rather risk losing hundreds of thousands of dollars in a lawsuit or spend a couple thousand protecting your assets?

I don't want to see you caught up in a lawsuit with your pants down. I bet you don't either. And remember, you're not just paying for an LLC when you come to Royal Legal Solutions. You're paying for our expertise, professionalism, and unwavering commitment to making sure your assets are protected from lawsuits.

The Benefits Of Homestead Exemptions

Homestead exemptions protect your property from taxes and creditors. Homestead exemptions are available in 48 states, notably Texas. If you live in one of the states that have these exemptions you can save you thousands in taxes.

Also, If your state has homestead protection, never put it into an LLC. Homestead protection is usually superior to what you can get from an LLC. But you may want to put it into a trust for estate planning purposes.

Every state that has homestead protections and exemptions will have different amounts for what they allow to be exempted. Whatever the exempt amount is, neither the IRS nor creditors can touch your property.

Let's Look at an Example of Homestead Exemptions

If your homestead exemption is $100,000  and your house is $50,000, well then it makes sense to pay off your entire house because we know all that money is going to be protected from a lawsuit since the exemption tells us that no one can get to it.

However, if your house values $200,000 and your homestead is $100,000 then what we want to do is create a lien (harmless debt) against your property to cover that gap so you can pay less in taxes and be protected more from creditors.

Homestead Exemptions Can Be Superior to LLC Protections

If you live in a state which has homestead exemptions, you're better off filing for those then an LLC. It will not only be cheaper (in most cases) but also more beneficial as far as property taxes go.

There are many ways to lower the value of your home and meet a homestead exemption limit. You could use a home equity line of credit and another bank loan or establish your own mortgage company.
These options aren't as complicated or expensive as you might think, especially when it comes to establishing your own mortgage company.

Always Know What Your Homestead Protections & Exemption Limits Are!

They're powerful, cheap to get and "old". The homestead laws have been around for over a century, which means they're not going anywhere.  Remember, never transfer your property to an LLC if you live in a state with homestead laws.

If you're interested in learning more about homestead protections & exemptions, call Royal Legal Solutions now to schedule your free consultation.

3 Key Bookkeeping Requirements For Your Series LLC

Don't turn back if you own a traditional LLC--the information about LLC bookkeeping below applies to both the traditional and series LLCs.

The series LLC is a powerful tool for real estate investors. It helps spread your assets across multiple legal entities, which protects your assets during a lawsuit.

Remember that old saying, "never put all your eggs in one basket"? A series LLC is the best way to spread your "eggs". 

As great as this structure is, it's no substitute for sloppy bookkeeping. If you as a business owner fail to abide by State requirements regarding their LLC essentially violate their agreement with that State. This leave you vulnerable to lawsuits.

LLC bookkeeping can be complex since the rules and regulations vary between States. We strongly recommend hiring a seasoned professional to help in this area. Today we’ll cover three of the most common mistakes business owners make with Series LLCs.

Mistake #1: Failing to Maintain Separation

A series LLC is multiple, individual LLCs. Each LLC within the series is distinct and needs to maintain its own records. Once you know how to start an LLC, you know that a series isn't that much more complicated (and often brings you added protections).

The purpose of the series structure is to make it easier to manage multiple businesses. It streamlines the management process. However, you should not try to combine  the different accounting records of your LLCs. Doing so can invalidate the series structure, leaving you unprotected, among other things.

Mistake #2: Not Naming a Registered Agent

Most states require your company to name an LLC registered agent, which is a physical address within the state. If this is one of the requirements in the state you filed your business, then foregoing that responsibility will invalidate your LLC and leave you unprotected.

Mistake #3: Being Unlicensed To Manage a Series LLC

Some states require you to have a special license in order to manage properties held by another entity or to run a property management company. Violating that specific state’s laws can put your series LLC in jeopardy and result in a costly lawsuit.

That's it for the requirements. But If you're interested in learning more about how to protect yourself and your assets from lawsuits, check out this article on the power of the series LLC with Anonymous Trusts.

How to Transfer An LLC's Ownership

Transferring ownership interest in a Limited Liability Company (LLC) may seem like a straightforward process. But you need to be careful!

The proceedings can easily be sidetracked by any missteps made during the original company formation.

And if that happens you may end up screwed. You may even lose the protections that you wanted the LLC for in the first place. All while spending unnecessary time in paperwork hell.

So how do you safely and easily transfer the owner the ownership of an LLC? I came up with a few simple steps. Check them out below!

Step 1: Identify the Transaction Process Of Ownership

The first thing you want to do is identify what type of transfer process is appropriate in your particular case. There are several reasons for transferring ownership. They can be put into two core categories.

Changing LLC Membership

Whether you're adding new members or losing existing ones, changes to the LLC’s membership must look to your company's buy-sell agreement or buyout provisions. Both terms refer to the same concept: a set of guidelines for how to transfer ownership interest within the company.

If this is your objective, then skip down the page to step #2 where we talk about operating agreements.

Selling the Business Itself

Preparing for an acquisition is much more complex and requires a good understanding of legal and fiscal options. You can draft the initial sale agreement in a memorandum of understanding or term sheet. However you will need to follow-up with a formal contract of sale. For this type of process, it’s always a good idea to consult a lawyer who specializes in buying and selling LLCs.

Step 2: Abide By Legal Requirements

Next, you need to look at the legal and operational requirements to execute the transfer. It’s important to abide by external law as well as internal policy. Let’s take a quick look at how both of these can affect your business transfer.

The LLC Operating Agreement

Members of an LLC generally sign a binding contract called an operating agreement. This document specifies the way a company will operate and covers various aspects of business processes. Including buy-sell contracts and buyout provisions.

It’s essential to determine whether your company has an operating agreement. If it does, you should find out whether it has any guidelines or requirements for transferring ownership.

Laws Of The Company's Home State

Limited Liability Companies are entities of the state in which they were formed. Which means they're subject to state laws. Each state takes its own unique stance on business law. Some are lenient, others not so much. You can read about my advice on which to form an LLC here.

Spend some time looking through the governing state’s laws regarding your LLC. Take notes related to any restrictions or requirements you may need to follow. It’s also a good idea to make sure the operating agreement proceedings fall in line with state statute. If you're lost, get an attorney with experience in entity formation and similar transactions to help. Being a great investor doesn't mean you can also be your own lawyer.

Get Professional Help With Your LLC

If you're interested in transferring ownership or membership of your Limited Liability Company, make sure to read your operating agreement, buyout provisions, and state legislation. And if you want to sell your company or are considering purchasing a business, then you should consult a legal expert to make sure your transfer goes smoothly.

Royal Legal Solutions offers full-service LLC and (S)LLC formation. This means we can help you transfer ownership while you get back to what you do best: running your business. Reach out for your LLC transfer consultation today.