To lend money out as LLC or individual?

Question

Hi, everybody, we are private lenders. in the past, we have been lending out using our individual names as lenders as well as our LLC as lender. Now I have a new lender (who just started) asked me what are the pro and cons of each. He has a real estate LLC, can he lending out using his real estate LLC as an lender?  Many thanks.

Natalie Kolodij · Answer

Account Closed Is your background is in law or taxation?

Frank Y. · Answer

Account Closed Thank you both for your response.  Thanks.

Account Closed · Answer

@Natalie Kolodij   Yes - Corporation Lawyer with a specialization in Tax and Business Organizations for my Post Graduate Diploma from Law College after my law degree.

I also qualified in a number of other professions with degrees, post graduate diplomas and experience - such as an Urban and Regional Planning (Masters Degree), Financial Planner, Securities Dealer, Real Estate Broker, Mortgage Broker, College Lecturer and Teacher in Economics - and few other things not especially relevant.

Account Closed · Answer

@Jordan P. You have it a bit ass about tit - the idea of the second member is to protect the assets in the LLC in the event that You are attacked personally. In which case the LLC is definitely a separate legal entity - but not so if it is single member.

Of course an LLC can be sued and assets take when it is the LLC that has transgressed - and that is why Donald Trump always uses C Corps. (along with most significant business people)

Account Closed · Answer

Careful following advice from lay persons - who give their views rather than professional opinion. In most instances a C Corp should be the vehicle used not an LLC unless the scale of your business is small.

Notice how few people in Real Estate are using C Corps? Those who do not are either small fry or heading for a fall.

Just another warning also on LLCs - if you do not have at least another member in addition to yourself you have no asset protection - as you are not able to defeat charging orders if you are a single member LLC

Jillian Sidoti · Answer

Hey Dee - We should chat. I am always looking for a good tax attorney to whom I can refer business. I am a securities attorney and only a securities attorney.

My short answer: always use an entity! Never do anything individual and never lend to individuals. B to B only.

Jordan P. · Answer

This is not a true one size fits all statement. It depends on the domicile state. Remedies allowed to creditors of LLC's, as well as how each state treats single member vs. multi member entities will vary, so knowing the rules in the state where you plan on forming is very important. My state explicitly provides that a charging order is the only remedy a creditor has whether the LLC has one member or more than one member.

Andrew Postell · Answer

@Frank Yang keep in mind that I am not an attorney but any business entity can lend money.  Any LLC would be fine for any purpose that I can think of.  If you start lending on more than 6 loans in a year then you would need to examine further options.  Not necessarily the business type of option but more of a compliance options.