Legal Benefits of LLC at Small Scale

[Franklin Marquette]

I currently own 1 property as tenants in common with 5 other owners. I own the majority (~54%). We only have 1 tenant now.

We are doing a renovation of the existing duplex and building an ADU complex, Once finished, we will have around ~5,000 sq ft of living space across 2 2 bed 2 bath ~1,000 sq ft ADUs, 1 ~2,000 sq ft 3 bed 3.5 bath unit in the existing duplex, and 1 ~1,000 sq ft 2 bed 1 bath unit in the existing duplex.

This will be a 4 unit (s 4 tenant groups) property but units will likely be split so that is not equivalent to only 4 individuals. There will be a total of 9 bedrooms and 8.5 bathrooms.

Given the size of this property once completed and the amount of individuals potentially residing there, AND given the multiple ownership dynamic, does it make sense to have this in an LLC once it is completed or is that overkill given we only have the one property?

I am only asking from a legal perspective. There are increased costs and complexities with an LLC so wondering if it is worth it even at this size (only 1 property) from a legal perspective.

Thanks!

[KC Ushijima]

If you and 5 other individuals create an LLC together (6 total), you will want to check with a local attorney to assess the risk of being considered a security.

Generally speaking, all members are supposed to be actively involved.  You can look into the Howey Test.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.