Did your LLC work for you?

Question

Does anyone have a first hand example of how a LLC worked, or did not work, for them?

I currently have 3 properties with an umbrella policy and an could contemplatin setting up a LLC moving forward.  I actively manage so expect my vail of protection would be thin.  tax accountant says no benefit there.  Can only get financing in my name.

Interrsted in experience of folks who have actually been sued with an LLC in place.

Brian Burke · Answer

@John Vietmeyer I'm not sure what you mean by "work for you" but I assume you are asking if the LLC insulated your personal assets from a judgment. It's a valid concern but in my opinion it's asking the wrong question.

There are actually two concerns surrounding the issue of lawsuits. The first is an award for damages.  The second is the cost of defending the suit itself.

An LLC could arguably be a part of the solution for protecting assets from a damage award, but it does absolutely nothing to protect you from defense costs.

After 25 years in this business, over 700 properties, and over 1,000 rental units it should come as no surprise that I've had the displeasure of a few nuisance lawsuits. Fortunately I've won them all so I can't speak to how effective my entity structure has or has not insulated me from damage awards. I think that my best protection from judgments is that I operate an honest business, treat people right, and follow the law and my contracts. My second best protection is my insurance. Entities don't rank much higher than an afterthought in my book.  But I'm not a lawyer so ask yours how they should rank for you.

Defense costs, on the other hand, are a very real concern.  I've been sued a few times in small claims court, so in those cases my defense costs were very low. A few of the suits were in superior court.  A couple of those cost me around $30K to defend.  One was about $180K.  And one was well over $1 million in just attorney's fees plus over $100K in costs.  Fortunately for me, the mil+ suit was defended by my insurance company so my cost of defense was zero.

Bottom line, the cost of defense in many cases is covered by insurance.  Damage awards are typically covered by insurance (except willful torts--but you won't commit those, right?), and many plaintiffs will settle within policy limits rather than go to trial in an effort to reach your personal assets (assuming you have large policy limits). LLCs will do nothing for you for what I've seen on the street as the biggest risk in business:  defense costs.

Matthew Kreitzer · Answer

Your tax accountant is giving you legal advice?

A) Stop listening to non-legal professionals for legal advice.

B) Go talk to an attorney.

Tax accountants are licensed and educated on one area of knowledge, and that they do well; the tax ramifications of electing a tax structure.

As for how that would impact the ability for litigants to reach your personal assets? Talk with a licensed, local attorney.

Vincent Incopero · Answer

@John Vietmeyer

A) THINK SPECIALIZATION!  When I need an estimate for a new roof, I don't call a plumber or a mason, and if my plumber was offering to do my roof, I would be concerned about the long term viability/quality of the work.

B) Overwhelmingly, a client appears at his attorneys office after the fact, rather than before.  This is often times the first avoidable mistake made.  Associate WITH AN ACTUAL ATTORNEY early and if possible often. +1 @Matthew Kreitzer

Broadly, speaking, there are 2 types of attorneys, Litigation and Transaction.

Litigators are, for lack of better words, backwards looking, evaluating the merits/reasonableness of a prior decision - Like arguing with the person riding shotgun about a missed left turn.

Transactional practitioners, broadly speaking, are like Google maps PLUS Waze.  They evaluate actual and potential risks in the route, suggest detours and often times advise what should absolutely not be done.

Bryan Blankenship · Answer

It's all very localized advice you'll need.  In Ohio, our LLC protections are extremely good.  I have a dozen for different businesses, some normal LLCs, some taxed as S-Corps and for all of my purposes they serve me very well.  But I wouldn't ever venture a guess as to how they would work in CA as I don't know the state law there.  Best of luck!

John Vietmeyer · Answer

roger that, good advice

Still interested in first hand experience if anyone has been sued.

Tkx

Did your LLC work for you?

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