This is regarding a series LLC in the great state of Texas, but I'd be interested in opinions from other states since I haven't come across any case law supporting an answer to this in Texas. I have a series LLC, each branch of the series owns one property, and also have a separate management company LLC for contracts, marketing, advertising, misc. expenses. I've read at great length of lawyers and CPAs recommending one account through the management LLC, since the series does nothing but 'hold' the properties. Now my lawyer is recommending me to have a different account for each property (aka one for each branch of the series) and operate each one financially individually also. Does anyone have opinions or case law supporting either side? What say you?
My gut says it's overkill but it doesn't really cost anything to have extra bank accounts though, so I guess it couldn't hurt.
It sounds like your attorney is trying to protect you in the event of a lawsuit, where someone might try to disprove that these entities aren't just one big company.
@Dave Van Horn . I know she is erring on the conservative side, and she's 100% correct. Just seems like a hassle come tax season and when purchasing a new home to set it all up. I'm just curious if anyone has any hard evidence or examples. Then again, it's less of a hassle than dealing with some renters ;)
Use management LLC and make each entity a separate class in quickbooks.
Three issues at play here. Legal protection, taxes, and practicality.
Taxes are simple. There is no difference for taxes, one way or the other.
Legal protection is up to the attorneys (I'm not one) - who notoriously disagree on everything related to Series LLC: from their viability to operational details. I've hosted attorney panels here in the great state of Texas ever since Series LLCs were introduced, with the same result: no consensus. Attorneys, when I bring this up, laugh and nod in agreement.
The most conservative attorneys insist that each series needs a separate bank account, a separate set of books, and a separate tax return. Otherwise, they say, the legal protection can be pierced. Other attorneys say that this is an overkill. Third group of attorneys question whether "1 property per series" approach can provide its supposed protection at all, regardless of bank accounts and such. Again, attorneys will not agree on this. I always tell my clients to find one attorney who they like and trust, and then follow this one attorney's advice without trying to validate it with other attorneys or, even worse, online. Validation is futile.
Now, practicality. Imagine you do not do anything with the property but hire a management company. They collect rent for you, pay all your bills and periodically settle with you. They do it for hundreds of properties for dozens of clients. Do they keep a separate bank account and separate set of books for each property? Clearly not. But they better designate each transaction as to which property it applies. Then they can instantly generate a per-property (per-series) report. You can imitate the same system with your own management company, as @Carl Fischer suggested, and stick with one bank account.
Unless your attorney overrules this, out of legal protection concerns.
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