Here are notes that I took during a Michael Bowman (favorite attorney) did for BOSS Business Services/Anderson Business Advisors.
I use Michael to form the LLCs for me in Nevada. I have filed for our own LLCs in Hawaii via the Hawaii State website. LLC renewals in Hawaii are only $12.50/year. LLC renewals in Nevada are $400+. So why do I even have Nevada LLCs? Because currently, our rental income properties are in Las Vegas.
Here are the notes, hope they are helpful to you!
THE concern are lawsuits. Plaintiffs will go after everything you have, so you have to run your business like a business, and the courts will recognize and respect that. You want to put up a wall so they can’t get to you.
Top reason judges “pierce the veil” is a failure to follow formalities. The veil is set up so avid lawyers can’t take what is in the LLC.
Keep accurate records – specific expense goes to the corresponding property.
A charging order allows the business to continue doing business – acts like a lien and only the assets that are paid out to members can be “attached” or given to the plaintiff (if they win the case against you.)
2 ways to hold an LLC. Manager Managed – all control is under the Manager. Member Managed allows control to each member.
Nevada’s courts’ rulings are getting stronger for asset protection of LLCs and corporation. Some other states are getting weaker because of their state’s court rulings. Alaska and Wyoming are becoming known as up and coming good states for asset protection, but they don’t have a lot of case rulings to prove it.
The guts of the LLC are the operating agreement provisions. Boiler plate (from website or even some attornys) provisions may not provide you the protection for your specific circumstances and business.
Need to revisit your LLCs and entities, not just put it on your shelf. Put the LLCs into your living trust – otherwise they are subject to probate. Trusts should also be reviewed from time to time because your situation will change.
Manager duties in an LLC – sign on behalf of the LLC, have meetings, minutes,
LLC is the landlord. Make sure the lease shows the LLC, not you on the contract. The property needs to be transferred into the LLC.
Meetings. More is better. If you are going to put a new roof on the rental property, have a meeting specifying that a roofing will be done or put off until next year.
As a single member LLC, document whatever decision you make. You want a lot of documentation if you ever have to go to court.
Entering into contracts should be in the LLC or entity’s name.
Joint ventures – form an LLC to do the joint venture.
Purchasing assets. If major, have a meeting, write down the thought processes about how your are buying and why.
Each LLC should have a separate banking/checking account as well as it’s own accounting. Take financial inventory on profits, expenses.
Separation between personal and business VERY important. Credit cards, checking accounts, expenses. Checks that you deposit need to be made out to the LLC not to you personally. Have tenants write out checks to your LLC. If it is written to you personally, endorse the check over to the LLC before depositing.
When you sign, sign your name, President (or Manager, member, etc.) of xyz,LLC.
Record keeping. Have meetings at least quarterly. Minutes are records of meetings – where, who was there, when, action items on discussion. There are constantly items that need to be addressed. Consent to action can be filed to catch you up.
Bookkeeping. Supports deductions, better tracking of activities, keeps a finger on your financial pulse. Find a system to keep your records in a timely manner. Avoids surprises.
When traveling, keep track of expenses. Dinner – who was there, why, and what was discussed.
Make yourself look impenetrable. If they can’t find anything, you are invisible to the hounds. Using the entity structures help make you invisible.
Max amount of assets in LLC. Cash should never be in same LLC as property. Determine your risk tolerance, and that determines how many properties in each LLC. Consider the total amount of equity in each LLC – that is your potential loss. If you have 5 properties in one LLC and something happens in one of those properties, the 4 other properties are subject to the suit also.
Buying & renting property in different state. Have it in the state in which you do business. Create a Nevada holding LLC that can hold all the other states LLCs.