Frank recommended setting up an LLC in Texas. I wonder what the advantages are to Texas over other states. Also, what are the annual hassles of maintaining a network of LLC?
Any contacts for setting up some Texas LLCs would be much appreciated.
I would recommend setting up an LLC in the state in which the real property is located. All our parks are in Texas, so we are certainly using Texas LLC’s for that. But as far as I know, there is nothing particularly advantageous in Texas versus any other state (other than Delaware). The LLC rules are very protective in most states, although there are some legal tweaks in Delaware that come in handy for certain situations, but this would be unusual for most people.
You can set up an LLC yourself, very easily. It usually involves filing a form with the secretary of state and naming someone who lives in the state as your “agent for service of process.” There are companies that will be your agent, for a fee of course. We pay our lawyer an annual fee to act as agent. You don’t need a lawyer to set this all up, though.
A major advantage of LLC’s is that (in Texas, and everywhere else I am aware of) you do NOT need to have annual meetings, minutes, or other annual sign-offs. You just do business as you see fit. (Treat the LLC as a separate entity from everything else, though! Otherwise a lawsuit can “pierce” your LLC and you lose the liability protection.) Our lawyer used to record annual minutes and send them to us for signing but we asked her to stop the practice for our LLC’s (and stop charging us for it!). There is no need.
Depending on the state, you will sometimes need to file annual (or biennial) reports with the secretary of state. Sometimes this will be via a franchise or income tax return (or both). Or it may be an “information return.” You may need to pay an annual fee.
But you’re generally going to have to get licensed to “do business” in the state in which your real property is located, so there is nothing to be saved by organizing an out-of-state LLC. In fact it might be worse, because you will have two state governments asking for fees. And you will likely need an agent for service of process in both locations anyway.
You are not going to save anything on income tax by incorporating in Texas versus anywhere else. Texas has no income tax, but LLC’s are pass-through entities and the owners will pay income tax on their share of the profits where they live. Texas has a “franchise tax” but small companies are exempt from paying anything. Maybe this is why Frank was recommending it. (CA, where I assume you are from, also has a franchise tax, but you have to pay no matter how small the company.) But you’ll probably have to pay the franchise tax or equivalent in whatever state the real property is located in, whether or not your LLC is organized there, since you’ll be doing business there. That will depend on the state and its laws, though.
It is definitely a good idea to write an LLC agreement between/among all the LLC members that spells out the rights, rules, and responsibilities of the LLC towards the members and the members toward the LLC and towards each other. The list of things you might want to be in there is pretty long, and you can certainly find help in other forums online. We use LLC agreements that are ~35 pages long (double-spaced)! My point is that the LLC agreement is pretty important and powerful. This is the one document to work hard on up front and it will last for the lifetime of the LLC.
I can’t recommend any contact for setting up a Texas LLC but I set up our last one pretty much by reading the instructions from the SOS online and doing it myself. I think it costs $300 to form one, and you need to fill out and submit a form or two.
I’d be happy to answer any other questions you might have. Let me know.
Brandon@Sandell
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