Hi - I have several parks and so far I have set up a different LLC or LP for each park. Is there wisdom in this?
Yes! We set up separate LLCs for each park and for each park’s POHs. Each LLC has it’s own EIN and bank account. We keep all revenues/expenses separate for the real estate vs. the wheel estate. We hold title to the real estate in a land trust. Keep separate all your assets. Dyches Boddiford, Peter Fortunato, and the late Jack Miller all have excellent books and seminars on asset protection. Get yourself through at least one of those courses to learn what is not taught at Bootcamp - smart asset protection.-jl-
Jefferson, Do you have a holding company for all the other LLC’s to fall under?-Merix
I don’t know about Jefferson, but we do have a holding company that all the other LLCs fall under. We have 1 “holding” company and 1 “manager” company that split the equity 99% / 1%. The reason for this is that the LLC needs two owners to be a taxable entity, and banks will want to see the tax returns.The “manager” company takes a fee from the park and covers expenses that are common to all our operations, such as business-wide administrative and insurance costs). The “holding” company is a completely passive limited partner. They split the profits and cash draw 99/1 after the fee.Brandon@Sandell
Are you saying that the holding and manager company form it’s own taxable entity? Doesn’t an S Corp do the same thing? In that the income doesn’t flow through to your personal taxes? And is this holding company formed under an LP or LLC?-Merix
Merix, I am not sure exactly what your first question is asking. If you are referring to the end of my first paragraph in the previous post, what I mean is that the operating LLC (the park) has to have 2 owners to make it a taxable partnership otherwise it would be a “disregarded entity” which I do not want because I want to show the banks the tax returns from that specific company (and it would have none, if it did not have 2 owners and did not “check the box” to be treated as a corporation.“Checking the box” (or creating a corporation to hold title to the park in the first place) does do the same thing. I didn’t do it that way, but could have. All our companies are LLC’s treated as partnerships (the default for LLCs with more than one owner). Did that answer your question?Brandon@Sandell
Separate LP’s or LLC’s or S Corps are good for liability mitigation. In short, they can help prevent liability from operations/assets in one entity from robbing another owned entity of its value. Separate operating entities are a particularly good idea when you have high risk operations/low value assets in one entity (ex. older rental MH’s), and low risk / high value assets (ex. home notes) in another. But be careful to always list all of our owned operating entities on your insurance policies. We’ve had clients in the past that got so many that they inevitably failed to list one, and sure enough, that’s the company that got sued. I recommend you keep a list of all your entities and submit that to your insurance agent.Kurt
Curious which state you normally set up your LLCs. The state you reside, the state the park is in, or other state that is better for asset protection and LLC law?
Bruce,The limited liability is granted by the state and the entity usually has to be registered by Secretary of State. The LLC needs to be set up in the state where the entity (park) does business and registered (and licensed) to do business in that state.Howard
Howard,I’m no expert, but I do know that many companies are set up in Delaware, Wyoming, or Nevada for instance for better privacy, asset protection, and less requirements on filings and then the owner can register in the State the park is located as a foreign entity.-Bruce
There is no real reason to set up the landowning LLC in a state different from the situs of the real property. My advice (for what it’s worth, which is $0) would be to recommend that you stick with in-state LLC. If you’re doing a multi-state operation in one LLC, I would think about it for about 5 minutes and then make a decision – either one state or the other or Delaware or Nevada or my home state.It is true that Delaware and Nevada have relatively lax corporate law, but you don’t really get around that because foreign entities have to register with the in-state authorities. It will be an extra layer of hassle and expense for you, and you are probably losing whatever protections you might have gained once you agree to abide by in-state authority (which is always a condition for doing business within a state). Regardless of the state of formation of the LLC, you can select a different state’s laws to govern your LLC agreement if you want, but that is really an issue between the owners, not an issue between the LLC and the “outside world.” For example, conduit mortgages are typically governed by NY law (because that is the center of the financial industry in the US and the courts there have seen it all and therefore the results of a court interpretation are predictable).Most states have standard LLC laws, and you aren’t going to gain much by looking for special perks that certain states give you. For corporations the rules are different, especially public corporations. But the differences in LLC law are very minor. If you’re going to be running multistate operations in one LLC, then I suppose I would pick a relatively “friendly” and “sophisticated” state, which means Delaware or Nevada, probably. But there are costs to doing things out of state (you need an in-state agent for process, legal counsel, state taxes, fees, etc). It adds up. In the end, it is possible to move a company to a different state, if you later meet with a need to do so.Brandon@Sandell
We don’t have a ‘rollup’ LLC in the sense of one master LLC that owns the others. But our property-specific LLCs to pay their earnings up into our master LLC. One could consider it an inter-company transfer, or a consulting fee.Good luck,-jl-