LLC Confusion in Florida!

13 Replies

Hello BP Community,

I've been reading the BP forums (and others) regarding forming LLCs, and oftentimes the information in one post/article negates what's in the next. My confusion lies in the varying information concerning the rates, states, and methods of forming an LLC. One BP poster even stated that he forms an LLC for every transaction that he does! (See below. He was telling another poster to not deal with an attorney who wanted to charge $1,000 to form an LLC).

Originally posted by @Kevin Costello:

Run from that attorney. I do a new entity for every transaction. I did one this week that cost me $350 and came with a simple operating agreement and a seal for the llc.

I'm more confused than before, because I was under the impression that one LLC protects you from litigation on all of the deals that you do under that LLC.

I've read that incorporating in Delaware or Nevada is advantageous, but that there are disadvantages of incorporating in a state that you don't reside in. I've also been told that forming my LLC in Florida (my home state) will turn out to be costly over time, because of the annual fees.

I'm an individual who will be working alone as I build and develop my real estate business. I have yet to pull down a deal, but I want to form an LLC to take advantage of transactional funding that is available to me (up to $750k per deal at a very good rate). I know that nothing's "simple", but I simply want to form an LLC that will cover me for the next several years as I develop my real estate investing business, that won't cost me exorbitant annual fees, and that won't require me plunking down thousands of dollars for an attorney's advice (which I don't have anyway).

Can anyone offer any solid 1-2-3 guidance on how I should proceed in forming my LLC in my home state of Florida, or elsewhere?

Many thanks!

@Lari A. Forming a title holding LLC is very simple. In fact, once one has a template they can do it themselves. When it comes to forming a LLC to run as an operating business it is best to have an attorney. If your business model is very simple a business formation company can register with the state and provide a out of a box Operating Agreement for a few hundred dollars.

In order for the LLC to provide any protection you need to know how to properly operate the company. Paying session fees to an attorney for guidance on how to operate your company could be worth the added cost if there is any uncertainty.

You should also speak with your tax accountant for advice on what tax election would work best for you and your LLC.

@Lari A.

Lari, I am not an expert in this area, but I will share the little I know about forming a Nevada LLC. Please see your attorney for professional advice.

First of all, there are benefits to forming in some states (such as Nevada, Deleware, or Wyoming) because the court systems are very protective of businesses/corporations. It is also harder to sue a company outside of your state. However, most of what I have read says to form the LLC in the state in which you will be buying property or else you will have to operate as a Foreign Entity, which has additional costs and hoops to jump through. I did not do that so I cannot tell you all that is involved there.

To setup a Nevada LLC to do business in Nevada, there are some fixed and variable costs.

Fixed costs (as stated by the Nevada Secretary of State):

1)  $75 filing fee
2)  $200 state business license (which you will need, even if you are only 1 person)
3)  $150 filing fee for List of Managers
4)  I believe you also have to pay for a registered agent, but my lawyer handled this

Variable costs:

The preparation of the following documents, which you could do yourself for free, or cross your fingers and use a template from the internet.  LegalZoom also offers this for around $200, but it takes awhile.  For me, the peace of mind from going with a Nevada attorney who knows the ins-and-outs of Nevada law and who was available to meet if needed was worth the $500.

-Initial Company Resolutions
-Articles of Organization
-Operating Agreement
-Obtaining an EIN (used for setting up bank account) 

So, my total cost was $925.  You can do it as cheaply as $425 if you want to take the risk of creating and filing everything yourself (which I did not do).

A lot will depend on what type of property you will be buying and for what purpose.  If you are going to buy single-family homes for buy and hold rentals, the answer could be very different than for someone flipping the same houses for quick (less than a year) profit.

I hold all of my apt bldgs 5+ units in LLCs. Houses I just have insurance. I'm a buy and holder. Just search on here for "I have a house in an LLC and I can't.... finance it... insure it... now the bank is calling the loan due", etc. Lots of potential problems. Provide a professional tax and legal advisor with a lot more information than you have given here and see what is best for you.

Oh- isn't transactional funding for like 5 minutes @Lari A. ? Maybe I'm confused on that.  Thanks for any feedback.

Thank you John Kent, Michael Helton, and Steve Vaughn for your thorough and detailed responses. You all have helped me to understand this process better, and it is obvious that I just need to put this in the hands of the professionals in order to have my LLC formed properly, and to be protected all around.

Steve: The private transactional funding available to me will give me up to two days to turn my deals around, and my focus is on pre-forclosures and foreclosures for my buyers.

@Lari A. Forget the Nevada LLC thing altogether. Lots of hassle for little benefit-the only real benefit is it hides your identity-if that really is a benefit.

Generally, an LLC is Not necessary for transactional funding. Annual fees for a Florida LLC are $150, no big deal. But then, the Need for an LLc is quite overblown, along with some of the hassles it creates...no conventional financing, insurance problems from some companies, etc.

Originally posted by @Wayne Brooks:

@Lari A. Forget the Nevada LLC thing altogether. Lots of hassle for little benefit-the only real benefit is it hides your identity-if that really is a benefit.

Generally, an LLC is Not necessary for transactional funding. Annual fees for a Florida LLC are $150, no big deal. But then, the Need for an LLc is quite overblown, along with some of the hassles it creates...no conventional financing, insurance problems from some companies, etc.

Thank you for offering more clarification on this subject for me.  You, and the others above, have certainly given me something to chew on, and I feel that I can now make an informed decision.

The reason why some people form an LLC for every transaction, is because they want to minimize the risk for their other properties. For example, let's say a tenant successfully sues your LLC and get a 200,000 dollar judgment. If the only asset you have in that LLC is the property X, which you have 35,000 dollar equity, then your other assets and rental portfolio would be may be safe because they are not an asset of that LLC. This sometimes is advantageous but not in every situation. Also, forming a separate LLC for every property is not the only way to protect your real estate portfolio and can be very cumbersome. And if not done properly, will not offer any additional protection.


But if you want to know which entity is best for you and works well in your State, you need to contact a real estate attorney. If you can't get an recommendation you should contact your local Bar association and they should be able to give you a reference.

Originally posted by @Amanda Davis :

The reason why some people form an LLC for every transaction, is because they want to minimize the risk for their other properties. For example, let's say a tenant successfully sues your LLC and get a 200,000 dollar judgment. If the only asset you have in that LLC is the property X, which you have 35,000 dollar equity, then your other assets and rental portfolio would be may be safe because they are not an asset of that LLC. This sometimes is advantageous but not in every situation. Also, forming a separate LLC for every property is not the only way to protect your real estate portfolio and can be very cumbersome. And if not done properly, will not offer any additional protection.


But if you want to know which entity is best for you and works well in your State, you need to contact a real estate attorney. If you can't get an recommendation you should contact your local Bar association and they should be able to give you a reference.

Amanda,

I so appreciate you breaking this "one LLC for each transaction" concept down for me! And, for the record, I will definitely be seeing a real estate attorney to discuss my options further.

Originally posted by @Al Wilson :
By all means, sit down with your attorney and have him or her explain this to you. No need to go to another state to form your entity. Good luck.

Al,

You're absolutely right, and thanks for your input!

The problem with a single member Florida LLC is that it no longer provides asset protection. The Florida supreme court set a precedent that allows a plaintiff to seize a single members stock to pay off any judgment.

 http://www.floridasupremecourt.org/decisions/2010/...

Hence, if you are forming an LLC to protect the asset from seizure pursuant to any judgment, that apparently will not happen.

So one choice would be to have an umbrella policy that pays out in the case of a judgment. In which case, why even have an LLC at all?

The other choice is to form an LLC in Nevada where it would be legally unlikely to happen as it did in the above noted Florida Supreme court case.

I'm leaning towards the umbrella policy. Does anyone have specific disadvantages of owning single family rentals in an LLC? They would be deeded to a trust, shielding the LLC ownership.

@Charles Terrizzi Just so you know, this case doesn't apply to the protections of an LLC, shielding the owner from liabilities of the LLC, which is what people are looking for.. This case is going the other direction. In this case, there was a judgment against the Individual (not his LLC) and the court decision was about seizing that individual's interest in the single member LLC, just like all his other "personal assets".

Originally posted by @Wayne Brooks :

@Charles Terrizzi Just so you know, this case doesn't apply to the protections of an LLC, shielding the owner from liabilities of the LLC, which is what people are looking for.. This case is going the other direction. In this case, there was a judgment against the Individual (not his LLC) and the court decision was about seizing that individual's interest in the single member LLC, just like all his other "personal assets".

Oh cool, thanks. That makes sense. So the value of the LLC is at least to shield the member from lawsuits against the LLC.