One of the best asset protection companies for real estate investors is the Series LLC. It's been around since 1996, originally started in Delaware but it spread through a number of states now. This allows you to form a Series LLC in their state and use the company in any state.
First, learn about the Series LLC vs LLC you probably know about. Then you'll start to understand that the Series LLC (unlike its more traditional counterpart) operates much like a parent-child type of relationship. You have one series LLC, this is the company named something like "Worldwide Investments LLC," for example. It will actually be filed in the state of Texas and that will have its certification of formation and all of those formal documents. Documents which certify that is a legitimate LLC inside of that state.
Series LLC has special provisions inside of a formation as well as operating agreement which gives it the ability to have children, as many children as it would like in fact. Each child is known as its series. So we'll have series A. Later you can form series B, which is separate legally from the first. You can have unlimited series within a Series LLC. That's advantageous, because each series is treated individually for liability purposes, just as if it were its own limited liability company.
This means that if you have a property, a single property that's held by series A, which is what I'd recommend. We should be compartmentalizing our assets as investors. Because what we want is if there's a lawsuit regarding series A, it doesn't affect series B, C, D,etc. for every asset that we have. A incident works much like a single purpose LLC.
Series LLCs is also advantageous because they allow one EIN number that's filed underneath this company name. That allows us to streamline our tax preparation so that we're not having to do individual company filing.
Now, there's some apprehension in the industry regarding whether a series LLC would be recognized in a state that doesn't formally have a law both in Washington and created there. I personally believe that there's good reasons to think that due to the growing trends nationally these companies will be recognized if ever challenged. There's not a lot of case law on that fact though, but there's a lot of good reasons and precedent that we typically do recognize a company formed in Texas that would be operating, say, in Idaho. Idaho will recognize a Texas company.
These are LLCs. Just like any other LLC. Just with one small caveat, that it can create tiers. But, for the more conservative investor that has any apprehensions about that, I would recommend using a traditional single purpose, limited liability company for each property.
You have to pay for the series LLC tax preparation for each one of those companies at the end of the year, you're gonna have to pay for the formation of those companies, operations, management, and registered agent of those companies which can be hundreds of dollars per year. And you're gonna have to pay what the overall complications and operations of those companies.
So you have to weigh your odds and how you feel about the Series LLC versus the single purpose limited liability company. My opinion is that the Series LLC is the way to go.
My name is Scott Royal Smith, with Royal legal solutions, I'm an asset protection attorney focused in real estate, and I'd like to help you. Set up a consultation to see how the Series LLC can streamline your asset protection protection today!
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