LLCs and Business account

15 Replies

Hello- I have created 2 LLCs for my 2 rentals that mean I have to have 2 different bank accounts? or I can have just one bank account that can hold all the LLCs. Any suggestions?  

Short answer is you don't need 2 LLC's and 2 bank accounts, if you have 2 small properteis. I had a few triplexes and condos at one point, didn't have LLC's, but used a separate personal account. I won't get into the issues of LLC or not, but on the banking issues. If you got LLC-1 for tenant-1, LLC-2 for tenant-2; deposit respective checks that way, it's OK. If tenant-2 issues a check for LLC-2, you cannot deposit into LLC-1 and visa-versa.

There comes a time where you'll have vacancies, tenants behind on rent on one of the properties, major repairs, you'll have a deficit in one, surplus in the other, then you'll have to shift funds around. In my case, I got several properties, usually runs positive cash flow overall on rentals, so I just transfer funds between my personal account, and the rental account. One way when there's a deficit, the other way where there is a surplus.

For bookkeeping, I use QuickBooks utilizing the class function, and I can develop a separate P&L, Balance sheet for each property, without separate LLC's.

In addition, I would have to pay LLC fees for each property, CPA charge separate fees for each LLC and K1's so I see no need to run up expenses for no good reason. Though I don't use an LLC for rentals, at the time I got an LLC for a business, have other businesses in S-Corp and C-Corp, with employees, quarterly withholding tax, workman's comp. unemployment insurance, annual federal and state returns so I don't need a few extra set of books, 5 more LLC's for rentals, which is totally redundant.

 

@Eve Oliver

If you only have two LLCs with two different properties and no holding LLC or management entity, then I highly suggest that you use two separate business accounts. And never transfer money from one LLC to the other directly without going through you in between if you are the single member. Doing otherwise would create a very good case for an alter ego attack that would pierce your company veil.

@Frank Chin @Mike S  Thank you for your insight!! My goal is to continuously grow my rental business, I just dont want to have several LLCs and Several Bank accounts. I have a few other properties that I want to move under a LLC but I got stuck on the process due to the Bank accounts.

@Eve Oliver

I have found local banks where I have multiple free business accounts with no minimum. I can transfer online from one account to the other instantaneously.

As long as you are keeping good books, managing different bank accounts is really simple.

Originally posted by @Mike S. :

@Eve Oliver

I have found local banks where I have multiple free business accounts with no minimum. I can transfer online from one account to the other instantaneously.

As long as you are keeping good books, managing different bank accounts is really simple.

Mike, I went through this. I had a C Corp management company to handle rentals, all checks can be made payable to it, so you don't have to set up different bank accounts, for me, up to six. You can then transfer on line to various LLC's, if you want to, and I don't see the issue of co-mingling funds.

But the biggest issue for me is 6 LLC fees, accountant fees for each company's books and filing running at least $250.00, bedsides personal tax returns and several other company returns I have. That's thousand of dollars more in accounting fees I have to spend. While you can get a bunch of commercial accounts for free, and easy to transfer between them on line, having a half dozen more corporate entities would require me to hire a bookkeeper since I would have three times as much work. Bank accounts may be for free, but CPA's don't work for free, and foolish to try DIY if you got so much at stake.

For my business that's in an LLC, my insurance agent wisely had me down with an endorsement that covers me, because around here litigants sue the LLC (or S-Corp, C-Corp) and the owners behind it as a matter of course. I just spent the money I saved on more insurance by buying a multi million dollar umbrella.

 

@Frank Chin

In my case I am also using a property management entity to collect all rents and pay all expenses as it also separate operation from assets adding more protection.

However I disagree with your statement on tax cost. All my single member LLCs are disregarded and the only reporting is through my holding LLC (partnership) It does not matter how many sub LLCs exists. I will only have one 1065 tax filing. Would my holding have been a single member LLC, there would be no filing at all as it would directly be on my own 1040.

For the LLC registration fee, depending on the state I agree that it may become expensive. In most states it's only around $100 per LLC and I consider that as a cheap insurance cost. You could also go with a series LLC that will cost the same fixed amount for 1 or 10,000 child LLCs. WY has recently adopted series LLC statutes and it is a great asset protection jurisdiction to establish one.

Originally posted by @Mike S. :

@Frank Chin

In my case I am also using a property management entity to collect all rents and pay all expenses as it also separate operation from assets adding more protection.

However I disagree with your statement on tax cost. All my single member LLCs are disregarded and the only reporting is through my holding LLC (partnership) It does not matter how many sub LLCs exists. I will only have one 1065 tax filing. Would my holding have been a single member LLC, there would be no filing at all as it would directly be on my own 1040.

For the LLC registration fee, depending on the state I agree that it may become expensive. In most states it's only around $100 per LLC and I consider that as a cheap insurance cost. You could also go with a series LLC that will cost the same fixed amount for 1 or 10,000 child LLCs. WY has recently adopted series LLC statutes and it is a great asset protection jurisdiction to establish one.

Mike, I know folks who use LLC's dwell on it's protection. In NY where I conduct my business, people sue the entity as well as the persons behind it anyway. The business I bought thru an LLC, was previously owned via an S Corp, was sued for $3 million, while owner only had $1 million through his S Corp thinking he was safe.

My employees including the manager of the business was called down for depositions, and the litigant attorney concentrated on what the owner did all day, whether he vetted employees before hiring. Nothing about co-mingling funds or other issues piercing the veil. Owner tried to get suit against himself dismissed but was denied. Since then, I questioned the value of LLC's as protection.

I also checked on tax filings with LLC's, and the first few properties I did with my mom-in-law, and I'm told I couldn't do it simply as a pass through on my taxes anyway.

As to banking, I had to use 4 to 5 bank accounts anyway in the course of personal and business affairs, and found I had to have at least $5K to $7k each minimum on hand to avoid cash flow issues, together with overdraft protection and the HELOC. If I go up to a dozen accounts, I either have to keep $50K in bank accounts, or spend half the mornings each day managing cash flow. I got better things to do, like for a while playing stock options where I did very well.

In the final analysis, there's no one size fits all in these situations. What's good for you may not be for me.

 

Originally posted by @Frank Chin :

Since then, I questioned the value of LLC's as protection.


You can always get sued personally. It may or may not stick. If you have no personal involvement in your LLC, the liability should not reach you individually. If you are personally involved in the LLC, then you can get liability, not as the owner of the LLC, but as its agent.

However, by having each of you assets in different LLCs in a good charging order state, even if you are sued personally, the assets that you own through the other LLCs will not be reachable.

 

Originally posted by @Eve Oliver :

Hello- I have created 2 LLCs for my 2 rentals that mean I have to have 2 different bank accounts? or I can have just one bank account that can hold all the LLCs. Any suggestions?  

Each business "entity" is like it's own person with it's own bank account. You will have to restructure the entire business if you do this. Unless you don't mind removing the liability protection that the LLC's offer by piercing the corporate veil.


@Jason Allen what you mean is" it defeats the purpose of the LLC if I have all the LLCs in 1 Business account instead of creating one for each of them? I will remove all the liability protection if I have all the LLCs in one BA correct?

Originally posted by @Eve Oliver :

@Jason Allen what you mean is" it defeats the purpose of the LLC if I have all the LLCs in 1 Business account instead of creating one for each of them? I will remove all the liability protection if I have all the LLCs in one BA correct?


By using the same account for different LLC, your opposing party will argue to the court that by putting their money together both LLC should only be seen as one, so defeating the insulation that you were supposed to get by creating two different entities. It does not mean that your opposing party will prevail in its motion, but by doing so, you weakened your asset protection as it is one of the elements that would be looked at when trying to breach the company veil.

You could use the same account and keep very good books accounting for each company money, but it will be difficult to argue that they have no relation with each other. In the case of series LLC, some people will keep one account for all the series. Again, it is not an automatic failure of the company veil, but it is a point of weakness in your defense.

 

Originally posted by @Eve Oliver :

@Jason Allen what you mean is" it defeats the purpose of the LLC if I have all the LLCs in 1 Business account instead of creating one for each of them? I will remove all the liability protection if I have all the LLCs in one BA correct?

 That would be considered "co-mingling funds" which could remove your liability protection but you'd have to consult with an attorney because there may be some off scenario where you could do it. But generally that's bad practice. 

Originally posted by @Mike S. :
Originally posted by @Eve Oliver:

@Jason Allen what you mean is" it defeats the purpose of the LLC if I have all the LLCs in 1 Business account instead of creating one for each of them? I will remove all the liability protection if I have all the LLCs in one BA correct?

By using the same account for different LLC, your opposing party will argue to the court that by putting their money together both LLC should only be seen as one, so defeating the insulation that you were supposed to get by creating two different entities. It does not mean that your opposing party will prevail in its motion, but by doing so, you weakened your asset protection as it is one of the elements that would be looked at when trying to breach the company veil.

You could use the same account and keep very good books accounting for each company money, but it will be difficult to argue that they have no relation with each other. In the case of series LLC, some people will keep one account for all the series. Again, it is not an automatic failure of the company veil, but it is a point of weakness in your defense.

 

Yes.