WHATS SO GOOD ABOUT HAVING AN LLC IN FLORIDA VS TEXAS.

WHATS SO GOOD ABOUT HAVING AN LLC IN FLORIDA VS TEXAS.

Rental Property Investor · Member since 2018 · 110 posts · 9 votes

What is so good about having a single member LLC in florida vs Texas? Texas costs $300 to form vs Florida at $150 and they to have state income tax both very flexible. Does anyone have better information on this subject?

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Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
7y

Texas has charging order protection that's fantastic. It has excellent series LLC laws. A TX LLC has no entity state income tax until you hit approx $1.1M in gross revnue. It has no state annual maintenance fee. TX LLC law allows single members the same asset protection rules as multi-member LLCs. It's very hard to pierce the LLC veil in TX. It's in TX statutes that an LLC member and the LLC can't be parties in the same lawsuit unless the member is suing the LLC or the LLC is suing the member. Those are just a few reasons TX LLCs are powerful legal tools.

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  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    7y

    I live in FL so FL is better for me

  • Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
    7y

    Texas has charging order protection that's fantastic. It has excellent series LLC laws. A TX LLC has no entity state income tax until you hit approx $1.1M in gross revnue. It has no state annual maintenance fee. TX LLC law allows single members the same asset protection rules as multi-member LLCs. It's very hard to pierce the LLC veil in TX. It's in TX statutes that an LLC member and the LLC can't be parties in the same lawsuit unless the member is suing the LLC or the LLC is suing the member. Those are just a few reasons TX LLCs are powerful legal tools.

  • Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @James Miller

    Curiosity question on my part...

    John Doe establishes a Texas series LLC and is the sole member. He acquires property in another state that allows not only charging orders to be attached on single-member LLCs, but has established case law that can order the liquidation of a single-member LLC in the event of a lawsuit. One day a balcony collapses and a tenant is on it at the time. Serious injuries and hospital bills ensue. Suit is brought against the LLC, John Doe, and the management company.

    What is the exposure to the TX LLC? To John Doe?

    I'm assuming this suit will be heard in the state property is located -- outside of Texas.

  • Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
    7y

    Lots of issues there and good things to think about. 

    The answer, like any good legal answer, will be "it depends." It's going to matter on each state's laws. For example, if we reverse it, and make it a non-TX LLC operating in TX, we would look at Chapter 9 of the Tex. Business Organizations Code. The law gives a "foreign entity" the same protections, obligations, and rights as a TX entity but no greater. This is not a big deal since the TX protections are great. So, we'd need to see what the statutes say on each state to see.

    It will also depend on the contract between the management company and the tenant. Did tenant sign only with management company? Was management company a third party or also controlled by John Doe? Did management company sign as agent of owner? Does management company have to indemnify owner? Did tenant acknowledge that owner doesn't maintain the property, only management company in the agreement? etc... What are the premises liability laws of RE's jurisdiction? Lots of variables to manage. 

    You're right in that the law of the "other state" is what will typically determine liability for the damage; however, it's pretty common that the "internal affairs" of an entity are typically governed by the law of the formation state. TX codified it's version of the internal affairs doctrine in Title 3 for LLCs. Each state will have their own statute and/or case law showing whether they do or do not adopt the internal affairs doctrine. What's less clear is what happens in a piercing the veil scenario

    I like to do an ownership trick that gives at least an argument to make creditors trying to foreclose charging orders potentially subject to internal affairs doctrine. Also, remember that charging order protection is typically an outside protection; i.e. it keeps your LLC assets in your LLC if you are sued for something outside of the LLC. Texas allows charging orders like most (maybe all? don't quote me on all) states, but Texas does NOT allow a creditor to foreclose a charging order.

    And then the biggie: can a foreign state force liquidate your single-member TX LLC? My argument would be no due to lack of jurisdiction. My follow up argument if I lost that would be the "other" state only has jurisdiction over the property in the "other" state. Whether that state can or cannot is a huge can of worms, conflict of laws, how much of a fight put up, is removal to federal court an option, etc..

    And unfortunately, even this post isn't exhaustive. Lots of angles I haven't discussed. But, having a strong protection LLC gives you the argument and the chance despite the "other" state's laws.

  • Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    Excellent, thank you James.

  • Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    7y

    Florida also has good charging order protection for multi-member LLC. However, it is not the case for single-member LLC (since Olmstead vs FTC). If you need a FL single member LLC, it is probably smart to have it owned by another out of state LLC that will have good charging order protection (like WY for instance).

  • Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
    7y
    Originally posted by @Mike S.:

    Florida also has good charging order protection for multi-member LLC. However, it is not the case for single-member LLC (since Olmstead vs FTC). If you need a FL single member LLC, it is probably smart to have it owned by another out of state LLC that will have good charging order protection (like WY for instance).

    Sounds like FL LLC owners need to just as a routine matter of practice include a non-voting second member with some nominal percentage of ownership to get that protection. I have not read the case mentioned above though, and that could have different interactions.

  • Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    7y
    @James Miller You could, but a multi member LLC has other inconvenient, especially tax-wise as it is not a disregarded entity anymore. In my case, I have one WY holding multi-member LLC that owns many single member LLC in each state where the properties are. The use of the WY LLC also give me anonymity in the other sub LLC as only the anonymous holding LLC is shown on the sub LLC records. I get the inside protection from each sub LLC that is good in every state, and I got the outside protection from the excellent WY charging order on my holding LLC.
  • Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
    7y
    Originally posted by @Mike S.:
    @James Miller You could, but a multi member LLC has other inconvenient, especially tax-wise as it is not a disregarded entity anymore. In my case, I have one WY holding multi-member LLC that owns many single member LLC in each state where the properties are. The use of the WY LLC also give me anonymity in the other sub LLC as only the anonymous holding LLC is shown on the sub LLC records.

    I get the inside protection from each sub LLC that is good in every state, and I got the outside protection from the excellent WY charging order on my holding LLC.

     That is also a valid approach as well. 

  • Rental Property Investor · Member since 2018 · 110 posts · 9 votes
    7y

    So how do you file taxes in Wyoming from the other states?

  • Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
    7y
    Originally posted by @Giovanni Luna:

    So how do you file taxes in Wyoming from the other states?

     Perhaps since Wyoming has no state income tax he doesn’t have to?

  • Rental Property Investor · Member since 2018 · 110 posts · 9 votes
    7y

    but he would still have to pay for the ones he has property the the state he has property in.

  • Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
    7y
    Originally posted by @Giovanni Luna:

    but he would still have to pay for the ones he has property the the state he has property in.

    Would do it like any other non-resident filed taxes. Either the WY LLC qualifies to do business in the other state and pays taxes to that state. Or has WY LLC own a "domestic LLC" in the state with tax which files the taxes and pays the net to the WY LLC which has no tax because it's in WY.

  • Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    7y
    Originally posted by @Giovanni Luna:

    but he would still have to pay for the ones he has property the the state he has property in.

    In Florida I don't...

    You still need to have a local tie with the jurisdiction where the property is to be able to act legally in that state (think eviction or defending a code enforcement violation for instance). You can get that tie with a land trust, a foreign LLC registration or directly by creating your LLC in that state. Whatever entity you chose, if the state requires you to file taxes for real estate income in that state, you will have to do it anyway.

    As my sub LLC and holding LLC are in states where no state filing are required, the only filing is the 1065 for the holding LLC and k1 issued to each member of the holding llc.

  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y

    @Giovanni Luna There is no state income tax for the TX LLC. You still have to file "no taxes due" annually. You need not necessarily have a presence in the state where your LLC is formed. If you use an attorney to form the LLC, he/she can often serve as your registered agent, which is indeed a requirement for out-of-state LLCs.

    One advantage I can think of in Texas that has not yet been covered (though I do agree with the info about charging order protection and favorable courts): you have the option to form a Series LLC. This can be the better choice for investors with multiple properties.

  • Investor · Albquerque New Mexico · Member since 2023 · 4 posts · 0 votes
    2y
    Quote from @James Miller:

    Lots of issues there and good things to think about. 

    The answer, like any good legal answer, will be "it depends." It's going to matter on each state's laws. For example, if we reverse it, and make it a non-TX LLC operating in TX, we would look at Chapter 9 of the Tex. Business Organizations Code. The law gives a "foreign entity" the same protections, obligations, and rights as a TX entity but no greater. This is not a big deal since the TX protections are great. So, we'd need to see what the statutes say on each state to see.

    It will also depend on the contract between the management company and the tenant. Did tenant sign only with management company? Was management company a third party or also controlled by John Doe? Did management company sign as agent of owner? Does management company have to indemnify owner? Did tenant acknowledge that owner doesn't maintain the property, only management company in the agreement? etc... What are the premises liability laws of RE's jurisdiction? Lots of variables to manage. 

    You're right in that the law of the "other state" is what will typically determine liability for the damage; however, it's pretty common that the "internal affairs" of an entity are typically governed by the law of the formation state. TX codified it's version of the internal affairs doctrine in Title 3 for LLCs. Each state will have their own statute and/or case law showing whether they do or do not adopt the internal affairs doctrine. What's less clear is what happens in a piercing the veil scenario

    I like to do an ownership trick that gives at least an argument to make creditors trying to foreclose charging orders potentially subject to internal affairs doctrine. Also, remember that charging order protection is typically an outside protection; i.e. it keeps your LLC assets in your LLC if you are sued for something outside of the LLC. Texas allows charging orders like most (maybe all? don't quote me on all) states, but Texas does NOT allow a creditor to foreclose a charging order.

    And then the biggie: can a foreign state force liquidate your single-member TX LLC? My argument would be no due to lack of jurisdiction. My follow up argument if I lost that would be the "other" state only has jurisdiction over the property in the "other" state. Whether that state can or cannot is a huge can of worms, conflict of laws, how much of a fight put up, is removal to federal court an option, etc..

    And unfortunately, even this post isn't exhaustive. Lots of angles I haven't discussed. But, having a strong protection LLC gives you the argument and the chance despite the "other" state's laws.

    Sorry I know this is an old thread I'm a young investor starting out. How would this work If I have a LLC in New Mexico that owns a Texas Property that is foreign qualified in Texas. The property is managed by a property management company. If let's say I had a bad car accident in NM and the creditors wanted to come after me and my LLC would I loose Texas charging order protection? New Mexico is kinda middle of the road it doesn't really mention anything in the state statute. Depends on the court I guess..

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