Why do i need an LLC?

Question

As a wholesale real estate investor, what are the benefits of having an LLC, if all i would be doing is collecting assignement fees? Also, what are the risks of not using an LLC as solely a wholesale real estate investor? thanks in advanced.

Ned Carey · Answer

You don't "Need" one. However an LLC can limit your liability. In today's litigious society limiting you liability is a good thing.  In your situation, as a wholesaler, there may be less need for it.

Court cases have been limiting liability protection of LLCs. I believe in FL, a court case recently shot down protection in a single member LLCs. You are always responsible for your own actions even if you are doing the work for an LLC. So the benefit may not be as great as one might  think.

Search back posts, you will find many threads on this issue.

Ned Carey · Answer

Of course J  Scott is right on in his answer. Unless you follow proper formalities in running an LLC (or any other entity, corp etc.) the entity can be pierced. In other words the courts can find it isn't a real company and you are personally liable.

However the other factor is you are always liable for your own actions. If you run over a little old lady driving to a property, you are personally liable. If that property is in an LLC and you were driving there on company business,  both you and the LLC are liable. There is essentially no protection.

If you are a single member LLC, it can be argued that everything the company does, you have done as the manager. Therefor you are personally liable and the LLC is meaningless. I don't know the details of the FL case but I suspect that is the reasoning. In MD the courts used some very convoluted logic to hold a member of a multi-member LLC personally responsible for lead paint poisoning.

J Scott · Answer

I'm not at all familiar with the case Ned is talking about, but in general, an LLC needs to be treated as a separate entity, not just an extension of the owner(s).  My guess is that too-often, single member LLCs are treated as an extension of the single owner, as opposed to a separate entity.

I don't know if this was the reasoning behind the FL ruling Ned mentions, but I wouldn't be surprised...

Shanequa J. · Answer

Ned Carey Why did the courts limit protection...can you give more details about the situation?

Why do i need an LLC?

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