WYOMING LLC REGISTERED IN CALIFORNIA
Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes
Malabute & Company CPAs525 Reviews
WYOMING LLC REGISTERED IN CALIFORNIA
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@Jason Malabute, I can only speak to what I know about Wyoming law. First Wyoming has a very strong set of statutes and case law supporting that entities that are properly run get liability protection. Corporations are run for the benefit of shareholders, so shareholders need to know what the business is doing, ultimately they are the beneficiary and owner. It doesn't matter if the shareholder and President are the same person, the way you behave should be the same. Do minutes, hold meetings. An LLC is really a partnership that has been given the same liability protection that a corporation gets BUT they get pass through tax status. That is the huge benefit. I cannot speak for any state but Wyoming, but since the owners are usually the operators the rules about keeping minutes are more relaxed than in a corporation. At least in Wyoming not having minutes absent something more is not grounds to pierce an LLC.
You didn't ask this question, but I am wondering, how do you make any profit with every property having the annual $800 or $900 CA corporate tax? I believe that LLCs and corporations if properly operated in many situations give a lot of added protection rather cheaply. The idea of stacking a lot of them together seems rather stupid when you consider the added cost especially for someone from CA. there is a risk that you will die or be involved in an accident every time you drive a car. Does that make you have 3 layers of LLCs to own your car? Does that make you quit driving? Why do you act that way with rental property? Do you hire a bus to drive you from place to place so you won't get killed in an accident because the bus will be safer than a car? there becomes a point where the protection is ludicrous. Do one or 2 LLcs at the most for say a million dollars of property. it depends on your situation. Put 10 of your $50K properties in one LLC, not one LLC for each. Like driving a car, don't drive drunk, don't text while driving, be careful. run your business right, obey the law, have really good insurance. Don't focus so much on a rather small chance of liability that you ruin your total likelihood of success. What is it that you plan to do that is so massively dangerous? Who really pushes the half a dozen entities and land trusts and shell corporations? The people who sell them! No one else does. I finally set down and counted doors for the first time in years a few days ago, and I have over 40. The idea of having 40 entities is insane. I would literally NEVER be able to manage them correctly. Really? Do books for every house? I buy a box of bolts or some tools, or buy an extra stove or fridge at a yard sale what entity do I put it in? If a faucet goes bad and I grab one out of the warehouse who did I bill it to the first time, and how do I change the books to reflect who got it? Really 40 sets of books? Forty sets of minutes? Forty annual filings and filing fees? Granted I have allowed too many to be in one entity and I am now up to 3 entities, but even 3 is a lot more work than one. I do minutes for every place I buy and finance. It takes me 3 hours at least to do my annual filing on my biggest corporation, heaven forbid if I did 30 or 40. I would probably do a separate LLC for every joint venture with a different person, but not for every property. That being said if you need 20 different LLCs to sleep well at night then do it if you can afford it, but look at the really big players. Do you think Brandon Turner or David Greene or Brian Burke have an LLC for every property? I bet not. Why not? Because they would never have the time to really grow real estate if they did one corporation for every property. The next big thing is who runs your business? The guy who unclogs his own toilet or installs his own carpet, etc. really doesn't get that much protection from corporate type entities because he can be personally liable for so many things. Now if you just buy the buildings, hire contractors, and hire property managers the odds are they won't really be able to get to you. One or 2 good entities should do it. Now if you run a bar you better get a lot of entities stacked up and go for the anonymous as much as you can, but real estate not so much. Some states like CA are so incredibly sue happy I get being as careful as you can, but for example in WY it is remarkable different. There will be a lot of states inbetween those 2 extremes. Either way relax, look how other folks are doing it and read and learn. Good luck bud.
15 Replies
- 6yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
I'm not a lawyer but in my experience that doesn't make any sense. Whether or not an LLC can be pierced has much less to do with where it was formed and much more to do with how you run your business. And, yes, in a lawsuit a judge might see that you are not treating your LLCs like a corporation and decide you do not deserve the protection that corporations provide.
Sounds like you are being sold a lot of entities and nobody is telling you how to actually run them.I recommend this simple book from John Hyre on entities and asset protection to help. https://www.taxreductionlawyer.com/products/
- 6yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
PS. I have heard that in some states a single-member LLC is now being disregarded and CA may be one of those. But, then you still have your Indiana LLCs and Indiana is a much more business-friendly state.
You would have to be in one heck of a lawsuit for someone to want to try to break through both.
- Property Manager · Shelbyville, IN · Member since 2014 · 303 posts · 161 votes6y
@Jason Ma not sure if any of that makes total sense. I always thought llc being sole member of another LLC (and chaining them together) was supposed to make it difficult for someone to figure out who actually owns what. So just for the sake of confusion.
As for the minutes, I refinanced several properties into a package earlier last year, and for the first time, the lender asked me for official minutes showing where decision was made to refinance and reasoning for the decision. Just strange I thought.
- Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes6y
Originally posted by @Justin Polston:
@Jason Ma not sure if any of that makes total sense. I always thought llc being sole member of another LLC (and chaining them together) was supposed to make it difficult for someone to figure out who actually owns what. So just for the sake of confusion.
As for the minutes, I refinanced several properties into a package earlier last year, and for the first time, the lender asked me for official minutes showing where decision was made to refinance and reasoning for the decision. Just strange I thought.
ok so I should keep minutes?
Malabute & Company CPAs525 Reviews - Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes6y
Originally posted by @Greg Scott:
PS. I have heard that in some states a single-member LLC is now being disregarded and CA may be one of those. But, then you still have your Indiana LLCs and Indiana is a much more business-friendly state.
You would have to be in one heck of a lawsuit for someone to want to try to break through both.
yes it would be disregarded in CA. I'm confused so should I have a Wyoming llc registered California as the sole member of all my Indiana llc?
Malabute & Company CPAs525 Reviews - Property Manager · Shelbyville, IN · Member since 2014 · 303 posts · 161 votes6y
@Jason Ma I would keep some sort of log.
- 6yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
My understanding is that you need to maintain corporate formalities. Generally that means a separate bank account (no co-mingling of funds) and you are following the operating agreement, which could mean a meeting with annual minutes or showing that a vote was documented on decisions that require a vote as @Justin Polston noted.
IMO LLCs are completely over-sold for single family. You first need to decide if you really need an LLC. What are you protecting? What are you protecting it from? You must also be aware of the time and effort it will require to maintain that structure. I know of people that set up an LLC for every property but then they fail to maintain them properly. In those cases, they feel better, but might actually be less-well protected and it costs them more than if they just got higher liability amount on their insurance.
- Specialist · Member since 2019 · 137 posts · 125 votes6y
@Jason Malabute I'm not sure why you stack many different LLC's like that and it's not something I recommend. You also don't explain why your lawyer advised you to make a California LLC instead of a foreign entity registered to do business in California under an Anonymous LLC?
I have some doubts that structure is going to do for you what you want it to.
Also, while minutes are important it is only a bit of paperwork you keep. The real corporate veil piercing you need is how you have your bank accounts, EIN & accounting structured on your back end. The ability to clearly show that transactions are conducted in a way that proves the separation of business entities is key. Plus it's what you should be doing anyway. You should know exactly the profit/loss and balance sheet for any given property so you can know whether to continue to keep it as is in your portfolio, and you can only do this with accounting and class separations.
If you have the right structure set up, you can do this with one bank account, one EIN and one structure while keeping the rest separate. However, not knowing your particulars makes it very hard to give exact advice. It's vital to know which state you live, where all your properties are located, your homestead (if you have one), values and type of REI business you have now and what you want to have in 3-5-10 yrs to have the right set up for you. How a flipper structures their business is going to be very different than someone who holds, for example.
@Jason Malabute, I can only speak to what I know about Wyoming law. First Wyoming has a very strong set of statutes and case law supporting that entities that are properly run get liability protection. Corporations are run for the benefit of shareholders, so shareholders need to know what the business is doing, ultimately they are the beneficiary and owner. It doesn't matter if the shareholder and President are the same person, the way you behave should be the same. Do minutes, hold meetings. An LLC is really a partnership that has been given the same liability protection that a corporation gets BUT they get pass through tax status. That is the huge benefit. I cannot speak for any state but Wyoming, but since the owners are usually the operators the rules about keeping minutes are more relaxed than in a corporation. At least in Wyoming not having minutes absent something more is not grounds to pierce an LLC.
You didn't ask this question, but I am wondering, how do you make any profit with every property having the annual $800 or $900 CA corporate tax? I believe that LLCs and corporations if properly operated in many situations give a lot of added protection rather cheaply. The idea of stacking a lot of them together seems rather stupid when you consider the added cost especially for someone from CA. there is a risk that you will die or be involved in an accident every time you drive a car. Does that make you have 3 layers of LLCs to own your car? Does that make you quit driving? Why do you act that way with rental property? Do you hire a bus to drive you from place to place so you won't get killed in an accident because the bus will be safer than a car? there becomes a point where the protection is ludicrous. Do one or 2 LLcs at the most for say a million dollars of property. it depends on your situation. Put 10 of your $50K properties in one LLC, not one LLC for each. Like driving a car, don't drive drunk, don't text while driving, be careful. run your business right, obey the law, have really good insurance. Don't focus so much on a rather small chance of liability that you ruin your total likelihood of success. What is it that you plan to do that is so massively dangerous? Who really pushes the half a dozen entities and land trusts and shell corporations? The people who sell them! No one else does. I finally set down and counted doors for the first time in years a few days ago, and I have over 40. The idea of having 40 entities is insane. I would literally NEVER be able to manage them correctly. Really? Do books for every house? I buy a box of bolts or some tools, or buy an extra stove or fridge at a yard sale what entity do I put it in? If a faucet goes bad and I grab one out of the warehouse who did I bill it to the first time, and how do I change the books to reflect who got it? Really 40 sets of books? Forty sets of minutes? Forty annual filings and filing fees? Granted I have allowed too many to be in one entity and I am now up to 3 entities, but even 3 is a lot more work than one. I do minutes for every place I buy and finance. It takes me 3 hours at least to do my annual filing on my biggest corporation, heaven forbid if I did 30 or 40. I would probably do a separate LLC for every joint venture with a different person, but not for every property. That being said if you need 20 different LLCs to sleep well at night then do it if you can afford it, but look at the really big players. Do you think Brandon Turner or David Greene or Brian Burke have an LLC for every property? I bet not. Why not? Because they would never have the time to really grow real estate if they did one corporation for every property. The next big thing is who runs your business? The guy who unclogs his own toilet or installs his own carpet, etc. really doesn't get that much protection from corporate type entities because he can be personally liable for so many things. Now if you just buy the buildings, hire contractors, and hire property managers the odds are they won't really be able to get to you. One or 2 good entities should do it. Now if you run a bar you better get a lot of entities stacked up and go for the anonymous as much as you can, but real estate not so much. Some states like CA are so incredibly sue happy I get being as careful as you can, but for example in WY it is remarkable different. There will be a lot of states inbetween those 2 extremes. Either way relax, look how other folks are doing it and read and learn. Good luck bud.
- 6yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
Originally posted by @Jerry W.:
Do you think Brandon Turner or David Greene or Brian Burke have an LLC for every property? I bet not.
Nope, sure don't. Most of what I buy these days is over $10 million. For those, each has its own LLC because I need to segregate investors in different properties (in other words, the ownership is different so the entity has to be different) and because our lenders for those size deals require single purpose entities.
But if I formed a separate LLC for each of the 700+ properties that I've purchased in my career (all of the houses and small multi), I'd need a full-time legal team just to handle entity administration. No thanks.
- what do you use for those 700+? Liability insurance? Trusts?
Quote from @Brian Burke:
Originally posted by @Jerry W.:
Do you think Brandon Turner or David Greene or Brian Burke have an LLC for every property? I bet not.
Nope, sure don't. Most of what I buy these days is over $10 million. For those, each has its own LLC because I need to segregate investors in different properties (in other words, the ownership is different so the entity has to be different) and because our lenders for those size deals require single purpose entities.
But if I formed a separate LLC for each of the 700+ properties that I've purchased in my career (all of the houses and small multi), I'd need a full-time legal team just to handle entity administration. No thanks.
- 1yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
Quote from @Robert D.:
what do you use for those 700+? Liability insurance? Trusts?They were acquired across 7 different LLCs, but not because of liability segregation—it was for investor segregation. And yes, always liability insurance.
@Jason Ma
There are different concepts that you need to understand.
First for liability. There are two types of threats: inside liability (something happened inside your LLC) and outside liability (something happened to you and someone is trying to take away your LLC asset from you). Every state have the same inside liability protection (if you don't do anything criminal or reckless, the only asset at risk are the LLC asset but it won't propagate outside of it to your other assets). The outside liability protection however is very different in each state. Some like California offer very little protection from a creditor, especially for single member LLC. Wyoming on the other hand offers great protection due to the charging order being the sole remedy even for single member LLC. So it is recommended that your holding LLC be in one of these great state like WY. In turn all the other LLCs will be owned by this holding LLC, and not by you. As these sub single member LLC will be disregarded for the IRS the only tax return will be for holding LLC.
The piercing of the company veil is a concept that if you don't treat your LLC as a separate entity (failure to maintain its documents, registration, commingling of money, not signing as the LLC, etc...) it will show a judge that the LLC was only your alter ego and he would deny any of its liability protection (inside and outside).
California is a state that requires that each LLC owned by a resident or doing business in the state has to pay a $800 franchise fee. There are different ways to approach it. If you are using a Wyoming holding LLC you will then have to pay a franchise fee for it, but not for the sub LLC out of state as you don't own them (the WY LLC does). Another setup for California is to use a DST instead that would be exempt from the fee.
- Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes6y
Originally posted by @Jennifer Gligoric:
@Jason Malabute I'm not sure why you stack many different LLC's like that and it's not something I recommend. You also don't explain why your lawyer advised you to make a California LLC instead of a foreign entity registered to do business in California under an Anonymous LLC?
I have some doubts that structure is going to do for you what you want it to.
Also, while minutes are important it is only a bit of paperwork you keep. The real corporate veil piercing you need is how you have your bank accounts, EIN & accounting structured on your back end. The ability to clearly show that transactions are conducted in a way that proves the separation of business entities is key. Plus it's what you should be doing anyway. You should know exactly the profit/loss and balance sheet for any given property so you can know whether to continue to keep it as is in your portfolio, and you can only do this with accounting and class separations.
If you have the right structure set up, you can do this with one bank account, one EIN and one structure while keeping the rest separate. However, not knowing your particulars makes it very hard to give exact advice. It's vital to know which state you live, where all your properties are located, your homestead (if you have one), values and type of REI business you have now and what you want to have in 3-5-10 yrs to have the right set up for you. How a flipper structures their business is going to be very different than someone who holds, for example.
The lawyer set it up like that to protect my assets.
I have separate EIN and bank account per property
Malabute & Company CPAs525 Reviews - Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes6y
Originally posted by @Mike S.:
@Jason Ma
There are different concepts that you need to understand.
First for liability. There are two types of threats: inside liability (something happened inside your LLC) and outside liability (something happened to you and someone is trying to take away your LLC asset from you). Every state have the same inside liability protection (if you don't do anything criminal or reckless, the only asset at risk are the LLC asset but it won't propagate outside of it to your other assets). The outside liability protection however is very different in each state. Some like California offer very little protection from a creditor, especially for single member LLC. Wyoming on the other hand offers great protection due to the charging order being the sole remedy even for single member LLC. So it is recommended that your holding LLC be in one of these great state like WY. In turn all the other LLCs will be owned by this holding LLC, and not by you. As these sub single member LLC will be disregarded for the IRS the only tax return will be for holding LLC.
The piercing of the company veil is a concept that if you don't treat your LLC as a separate entity (failure to maintain its documents, registration, commingling of money, not signing as the LLC, etc...) it will show a judge that the LLC was only your alter ego and he would deny any of its liability protection (inside and outside).
California is a state that requires that each LLC owned by a resident or doing business in the state has to pay a $800 franchise fee. There are different ways to approach it. If you are using a Wyoming holding LLC you will then have to pay a franchise fee for it, but not for the sub LLC out of state as you don't own them (the WY LLC does). Another setup for California is to use a DST instead that would be exempt from the fee.
Thank you for explaining in a simple way
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