If you’ve got money, people want it. Lawsuits are one of the easiest, yet still legal, ways for people to take 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 you have located inside of any individual LLC, the more attractive it's going to be for someone to sue you. Lawsuits against a series LLC, on the other hand, are a dead-end for money-hungry lawyers and litigants.
Lawsuits are all about how much money can I get out of somebody, and if there's a million dollars sitting inside of an LLC in equity or cash, well, that might be something that I really wanna go after.
That's why you should limit the equity of any individual LLC to $200,000.
Note: This is not the case if you're using a series LLC for real estate, because series LLCs allow you to compartmentalize those assets. So, you don't have the same worries there that we do inside of a traditional LLC.
However, I think that usually a few million dollars inside a series LLC makes it reasonable to be able to create a new entity just in case. Why not? Expenses that you're being able to incur by having to create a new series LLC,are far less than the amount of risk that you pose when you're risking millions of dollars in equity.
You can read about what the IRS thinks about an LLC here. But know this: 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. Compartmentalizing assets means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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