Starting LLC partnership vs sole proprietorship

5 Replies

I have two rentals, one in Missouri and one in Nevada- I need to open an LLC - I hear NV has better protection laws on properties- should I open the LLC there and create a serious LLC? I plan to purchase more properties in MO. Also- is it smarter to be a sole proprietorship instead of a partnership? I am married but we try to keep my husbands business/ income separate from the rentals- also for liability reasons. Advice?

Originally posted by @Megan Penman :

I have two rentals, one in Missouri and one in Nevada- I need to open an LLC - I hear NV has better protection laws on properties- should I open the LLC there and create a serious LLC? I plan to purchase more properties in MO. Also- is it smarter to be a sole proprietorship instead of a partnership? I am married but we try to keep my husbands business/ income separate from the rentals- also for liability reasons. Advice?

A sole proprietorship means no legal entity. In other words, you just buy the property under your own name. I think what you mean is single member LLC versus having your husband on the LLC. Being married, it is really hard to separate finances, despite your best efforts. Odds are good that you jointly file taxes and comingle finances other ways. If someone sues your husbands business or your rental properties, LLC may slow them down, but will not shield you if actual negligence is involved. Although an individual in a marriage can file bankruptcy, odds are good that both of your financial situations are included in the actual bankruptcy. This varies by state. Talk to a local attorney about your strategy and make sure it actually give you the protection you think it does. Separating things can create other problems and expenses, so may not be worth it in the end.

Originally posted by @Megan Penman :

I have two rentals, one in Missouri and one in Nevada- I need to open an LLC - I hear NV has better protection laws on properties- should I open the LLC there and create a serious LLC? I plan to purchase more properties in MO. Also- is it smarter to be a sole proprietorship instead of a partnership? I am married but we try to keep my husbands business/ income separate from the rentals- also for liability reasons. Advice?

From taxation perspective, you will have more tax compliance fees with partnership. If you happen to get the LLC, just get a SMLLC. But, please discuss this with your attorney. MMLLC sometimes are safer for legal issues.

@Megan Penman

I fully support your interest in "serious LLCs" - they are far better than the non-serious LLCs because the latter ones are just... not serious enough. ;)

Seriously though (yes, intended) - your question needs input from an asset protection attorney familiar with your state laws. I'm not an attorney, so my opinion is worthless. So is the opinion of any other non-attorney. 

Unfortunately, attorneys disagree between themselves what works best, if at all. Some attorneys recommend multi-tier LLC/trust structures that are very complex and expensive. Other attorneys suggest something very simple, such as a simple LLC or even no LLCs at all.

Attorneys also cannot agree on whether or not Series LLCs are a good idea. Some love them, others claim they do not work, and anything in between. Not all states allow/recognize Series LLCs. Yours does.

Then there's an issue of where to create your LLC(s) - another area of disagreement.

The only recommendation from me is to find one local attorney with good reputation (ask in a local BiggerPockets forum or in a local Facebook group) and trust hers/his advice. Do not seek a second opinion, as it is virtually guaranteed to be different from the first lawyer you ask.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information. 

As a general rule, real estate holding LLCs should be created in the same state as the property. While some states have better protections for LLCs than others, when it comes to real estate courts only want to recognize local protections. If you want one as a holding LLC, you could do that, but it's just more paperwork.

Series LLCs are great tools, but they're really only good within that state. Using a series outside of the state is simply unknown territory.