Combine two LLCs without a sale of property?

Question

Is it possible to combine 2 LLCs?  Lets say I have 100 identical single family homes in one neighborhood owned in two LLCs.  20 are 100% owned by one owner.  The other 80 are 50/50 between the original owner and another owner.  Can owner 1 contribute his 20 homes to the bigger LLC for 60% ownership in the combined entity without recording a sale/paying tax?  The goal is to simplify financing and operations.

Chris Martin · Answer

See also my response in Buying a property owned by an LLC which describes some options. The short answer is my company (an LLC) acquired another LLC and the easiest part was the filing. In NC, you can use the Articles of Merger form on the NC secretary of state's web site.  @Michael C. Each LLC can hold an arbitrary number of properties. The difficult parts when we did our merger involved our operating agreements and accounting (which the accountant handled).

Michael C. · Answer

Jason,

Thank you for your response. This is real world. The houses are identical and built over several years. The properties are owned by close family members, both active. They would most likely be refinanced into one loan after LLC combination. Sale of all units combined is the eventually exit strategy. I'm trying to make it a nice package to manage and eventually sell.

Has anyone done something like this?  I know you can contribute property to an LLC without a taxable event, but can you contribute property to an LLC that's already in another LLC?

Jason E. Smith · Answer

Hey Michael, I'm glad your goal is to simplify financing and operations because I don't know that I could help you make it more complex!  Is this an actual real world issue?  I would call the corporate attorney used to setup the LLC's and speak to them.  And were they all purchased as the same time with one lender?  Either way I imagine the lender(s) will want to know ownership is changing.   And in the case of 50/50 ownership, are both active or is one passive?  If either are passive, then you'll need a SEC attorney because technically you're selling a security.  I think a lot of people think about buying single family under an LLC thinking it gives asset protection but it's over kill in my opinion.  Buying a single family and just holding it in your personal name you'll get residential financing (you have to use commercial financing buying in an LLC) and with good insurance it will cover the majority of situations.  If you're still concerned you can add an umbrella policy for just a few hundred dollars per year that will cover multiple properties, after which you can get additional umbrella policies to cover additional homes.  All of that structure is sufficient up to 10 residential loans and would be much more simple for financing and operations.  You can easily sell individual properties when structured like that, whereas under an LLC you'll need to have specific carve outs written in to determine how to sell individual properties out of the LLC and how that impacts loan balances with the lender, etc.