Should You Form A Single Member or Multi Member LLC?
Alright my fellow real estate investors, let’s break this down!
First and foremost, most of the time you can choose which kind of LLC you want. Whether a single or multi member LLC is required depends on state law.
For example, if you decide to form your LLC In Texas, a single member LLC is fine. But in Florida you’d need more than one member who isn’t married.
The single member LLC vs the multi member LLC
As their names suggest, the single member LLC has one member, while the multi member LLC has at least two members. As they say, two heads are better than one.
If you get a single member LLC, it will be your responsibility to keep records. And in case you didn’t know, if you don’t keep records your LLC will lose it’s protections, leaving you vulnerable.
Which brings us to our next point. In many states, a single member LLC is more vulnerable to a lawsuit than a multi member LLC. How so?
Let’s say you cause a car accident while texting and you get sued beyond what your insurance policy will cover. In about 20 states, the law says creditors are allowed to come after property held in your LLC.
However, in those same states, if your LLC had been a multi member LLC the creditors wouldn’t have been allowed to come after your properties. So as you can see, whether you should get a single member LLC or a multi member LLC depends on what state you want to form it in.
Also, something that’s worth your minor consideration is that a multi member LLC will cost more in tax preparation. This is simply because there’s multiple returns being filed.
Getting around state law
The good news is you can form an LLC in Texas and use it in any state. When the court reviews whether to uphold your Texas LLC in another state, they’re going to check to see if your LLC is properly formed. If it is, you’ll be protected. But if it isn’t, you’re screwed.
I recommend you form your LLC in Texas or a similar state with strong asset protection laws. This will prevent your LLC from being sued and having your properties liquidated on a technicality.
If you have any questions about the single member LLC or multi member LLC, I’d be glad to answer your questions in the comments below.