With Multiple LLCs - master bank account or individual accounts?

Question

I have 3 rental properties all in individual LLCs. My intention is to continue to add to the number of total properties over time. Which LLC/bank account structure is best practice?

A) All LLCs have their own bank accounts.

B) A master bank account to handle all cashflow in/out of the group of LLCs (with appropriate breakout accounting).In this scenario, do I need to create an LLC to get a separate EIN for this biz bank account?

C) Create an umbrella LLC that owns each individual LLC and have a master bank account for the umbrella that handles all cashflow in/out?

Pete Harper · Answer

@David M.

You are correct, this would constitute commingling of funds and likely nullify the legal protection of the LLC’s. A good lawyer would pierce the LLC veil.

The way it was explained to me by my attorney is each LLC needs to maintain separate bank accounts and books. If they have different tax ID numbers you can not commingle funds or you nullify the LLC.

There is a LLC structure that will do what you want. Look up Series LLC in the state where you hold the properties. With a series LLC each property goes into its own series. All the series are owned by the same parent LLC with one Tax ID and one bank account. As you buy more properties you simple create a new series.

I’m not a lawyer and don’t play one on TV. Get good local legal advice before proceeding.

Megan Templeton · Answer

Hi there! @Tyler Durbin

I would recommend creating an LLC to be your operation LLC. This LLC wouldn't own any assets but would serve as your public facing entity. To clarify, the LLC would be the one that enters contract with 3rd parties such as service providers and tenants. All money would then flow through your operations LLC and the operations LLC would then distribute to the asset holding LLCs based on the ownership. This set up allows you to have an extra layer of liability protection because your asset holding LLCs are not interacting directly with the public and it can streamline business practices as banking/bookkeeping can all be done under the operations LLC. The trick is to make sure you have a contract between each asset holding LLC and the operations LLC for property management.

Thanks,

-Megan

Antonette El Baz · Answer

As an accountant of AE Pinnacle Accounting, LLC, here are my two cents:

• Credit cards:

A) In general, it is not advisable to use one LLC's credit card to pay expenses for another LLC. Doing so can blur the lines between each LLC's financial activities, potentially exposing each LLC's assets to liability. However, if you are diligent about recording each expense in the correct LLC's books and maintaining clear separation between the LLCs, it may be possible to use the holding company's credit card for expenses of the other LLCs. Nevertheless, you should consult with a lawyer to ensure that your LLCs' corporate veil remains intact and that you are not exposing any assets to unnecessary risk.

B) I recommend speaking with your bank about their options for issuing credit cards per subsidiary. Some banks offer credit card programs that are designed for multiple LLCs owned by the same holding company, which can simplify the process of managing expenses across multiple accounts.

2. Operations LLC:

If your Operations LLC is structured as an S-corporation, the income earned by the LLC will pass through to the shareholders and be subject to self-employment taxes. However, S-corporations can offer tax advantages by allowing shareholders to receive income in the form of distributions, which are not subject to self-employment taxes. It is essential to consult with a qualified tax professional to understand the tax implications of your LLC's structure and to ensure that you are properly reporting income and paying taxes.

Andrea Weule · Answer

We have management set up for all our properties and I have a bookkeeper.  In addition to our 24 rentals (we get another 2 or so a year) we do at least 4 fix and flips and over 20 wholesale deals every year.  So I pretty much just manage the property managers, contractors and make loads of offers.

Andrea Weule · Answer

@Brian Gerlach, We use quickbooks.  We have 24 properties across 5 markets, so it makes life easier for us and our bookkeeper.

Tyler Durbin · Answer

Unfortunately, Ohio doesn't have Series LLC. I think the same idea can be executed with a master LLC that acts as a property manager. Though some friends in law have stated concern that the court would look to that structure with some concern as if I was trying to unnecessarily create complexity. All in all, I run really nice properties and have really strong documentation. Just trying to tidy this piece up a bit without creating some unforeseen liability in the process

David M. · Answer

@Tyler Durbin

My layman's opinion is option A.  Co-mingling funds, be it personal with commercial vs commercial with commercial, is still co-mingling funds.  If you wanted a more single point/flow of funds, I should think you'd need to create a different LLC structure where one LLC does the management/operations for the other LLC's.  Its like hiring a property manager.  You need to get a professional involved in getting this structured correctly legally.  Done correctly, I think it further segments your liability since the property (the LLC holding Title) is now separated from the leasing activity (the Mgt LLC).

Good luck.

Tzvi Keisar · Answer

Some interesting topics here. I have questions related to the topics:

1. Credit cards - I have multiple LLCs owned by a holding company. I also have bank accounts for every LLC (A Chase business account for the holding company and Stessa's virtual bank accounts for the subsidiaries so it is super easy to manage). There are perks for paying with a credit card, but it is a hassle to get one for each LLC (Too little revenue for Brex, Ramp, etc.). I do have a Chase Ink business credit card for the holding company. Questions are regarding liability protection and corporate veil in those situations:

A) Is it ok to pay with the holding company's credit card for expenses of the other LLCs? I am doing proper bookkeeping and making sure expenses are reported for the right LLC, but wondering about the veil protection here...

B) Does anyone have experience with a credit card provider that can easily issue credit cards per subsidiary without a lot of hassle?

2) @Megan Templeton when using an Operations LLC, are you using S-corp? Is the income not considered now regular wage income (this is the main business of the company) and requires to pay either employment or self-employment taxes?

John M. · Answer

So if you have 12 LLC's that is 12 different bank accounts.  What happens if one of your LLC's is not making any money because of a vacancy?  Then in order to pay the taxes, insurance etc for that vacant LLC you would need to transfer funds into that account from your other LLCs to help pay the bills correct?

Peter Lohmann · Answer

Hey Tyler - your bank account structure really doesn't matter all that much. The government doesn't care what you do as long as you pay taxes that are owed. We run all our properties through 1 bank account, and all our client's properties through a different one (the trust account). This is all very standard. The most important things are - 1) Don't comingle your own personal funds with LLC funds, and 2) Make sure you keep tenant security deposits accounted for clearly - either in their own bank account separate from operating funds, or just have good accounting that shows how much of the money in the account is for which property and which security deposit.

With Multiple LLCs - master bank account or individual accounts?

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