Should You Form A Single-Member or Multi-Member LLC?

All right my fellow real estate investors, let's break this down: Single member vs. multi member LLCs.

First and foremost, most of the time you can choose which kind of LLC you want. Whether a single- or multi-member company 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 your spouse.

Single-Member LLC Vs. Multi-Member LLC

As their names suggest, the single-member LLC has one member, while the multi-member LLC has at least two members. Two heads are often better than one. This is usually true for LLCs formed for asset protection benefits.

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 its protections, leaving you vulnerable to lawsuits.

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 Restrictions on LLCs

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. Learn more about how the Texas LLC protects real estate assets.

If you have any questions about the single-member LLC or multi-member LLC, I'd be glad to answer them in the comments below. For personal advice about the best LLC choices for you, schedule your consultation now.