BiggerPockets

The company entity issue continues to come up on this board as well as my landlord's association. Here is a site that recommends against an LLC or corp.: http://www.johntreed.com/entity.html

For example it states:
"But in a tort where someone is damaged by your negligence, for example, you can't say, "You have to sue my corporation." The tort victim never signed a contract agreeing to that. They were just minding their own busiess when you hurt them. They can hold you responsible."

This site makes strong arguments. I am new to this so I just want to get all of your comments.

[NOTE FROM ADMIN - Our legal blogger has posted a direct response to this post that is an important read for anyone concerned about liability. It breaks down all the false info being spread on the subject: Please read:
Piercing the Veil: Holding Owners Liable for the Acts of the Business]

John Reed doesn't have a lot of credibility in my eyes. From your link:
>asset-protection strategies are of questionable legality and ethicality.

That shows total ignorance on his part as to why the concept of corporations and entitles were created in the first place.

There is no controversy about LLCs. There are pros and cons to using various entities. You must understand what they will do for you and what they will not do for you. You must understand how to operate them properly.

LLCs and not a cure all for asset protection however I will not own an investment property in my own name. I highly recommend the books by NOLO Press on LLCs. Nolo is a self help legal company and they will give you a good understanding of them. I don't recommend "do it yourself" legal work, but I do recommend being educated when you talk to your legal professional.

What is really needed is the input of an actually lawyer on this, but I'll take a stab (I'm not a lawyer)

An LLC offers the same type of veil status as corporations, with the same taxation as a partnership. BUT LLC's have limited precedents relating to LLCs and those in existence are limited, so I'd say that going to court won't always be a black and white issue.

Someone else was talking about the liability you incur as an employee, which is to say that as an "agent" of your own company, the company is liable for any torts you incur as an agent of the company

Translation- you run someone over backing out of the driveway of one of your properties, and they can sue the company, as you are acting on the company's behalf. And they can also sue you directly.

Also if you run someone over at your uncle's house because you're drunk, they can sue you and attach your LLC assets.

what an LLC DOES protect you from is if a hurricane wipes out your property and you're underinsured- they can take your LLC assets, but not your personal assets.

Again, I'm not a lawyer, but hopefully this helps

I also wonder why I would want to set up an LLC or S-corp if it is true that one could sue me individually anyway.

Anyone can sue anyone these days. The point is, if you operate your biz in a professional and competant manner, you reduce or even eliminate the chance of someone winning the case. Taz said it best, there are reasons for using an LLC and advantages to it, but you must do it and operate it correctly, otherwise, you do stand the chance of the corporate veil being pierced.

I like this statement the best as it is very accurate:

Originally posted by Taz

There's no real controversy, but there is a lot of confusion.

Mike C

Do you use a lawyer even for evictions? I have heard those are straight forward enough so that it does not justify paying for a lawyer.

What are some of the specific problems some of you have with Reed's statements? I think this issue is important enough that it warrants more detail.

Originally posted by NC Mark

Lastly, I'm in the minority here, but I like John T. Reed and have several of his books.

I have heard that his books are very good. I just don't agree with some of his points. He discredits some RE instructors that are very good. In his zeal to discredit instructors that he uses some pretty arcane logic against some legitimate techniques.

Good grief, so much bad info.

A properly set up LLC is better then a corp. I owned an office building and one of the law firms that rented from me loved suing corps. The secret was just suing everybody, the board, the employees, the stockholders, etc.never seen one case where their assult didn't work.

On the other hand a multi-member LLC with the proper set up has withheld assult by the legal profession. Suggest you find a lawyer that really knows asset protection

A person can sue me and win but lots of luck getting to my assets in the LLC. Ask OJ how he keeps the brown family out of his pocket.

Quick note to all here! It would be advisable, no matter what legal entity you may so choose for you Real Estate business, to be keenly aware of the fact that the IRS is aggressively going after LLC/Investors who have been using the Professional Real Estate designation on their tax returns to offset losses etc. and holding property in Individual LLC's. A sandwich Trust is a much more prudent alternative. Talk to your Attorney/Tax Advisor.

As always, Greg makes sense of a topic that is not so complicated, but made that way due to all the guru propoganda and the miscommunication of information.

Way to go Greg!

Mr. Reed has a vastly different opinion from most of the posters here. I am certainly not an expert on this, but it seems it should be possible to do something like a NEXUS/LEXUS search to find how many times the corporate veil has been "pierced."