Lititz, PA · Member since 2013 · 595 posts · 272 votes
Hello,
Looking at investing in my first syndication as an LP. Are there any potential problems with investing as an LLC and not as an individual? I'm considering doing it as an LLC to reduce liability.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
@William Coet
Have you spoken to an attorney to review the documents? I have never seen a syndication where the LP would have any personal risk or exposure.
I know several who invested in my fund with a LLC and regret it because they close the LLC because I just costs them more money every year and to transfer it back into their personal name is additional paperwork and costs to transfer.
Thus I do not see what benefit there is investing as a LP with a LLC
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
@William Coet
Have you spoken to an attorney to review the documents? I have never seen a syndication where the LP would have any personal risk or exposure.
I know several who invested in my fund with a LLC and regret it because they close the LLC because I just costs them more money every year and to transfer it back into their personal name is additional paperwork and costs to transfer.
Thus I do not see what benefit there is investing as a LP with a LLC
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
1y
I agree with @Chris Seveney. A syndicate is already an LLC or a LP so I don't see any added liability protection by having a second entity layer. Out of 2,500+ investors we have as clients, only a small handful invest as an LLC.
I could see the point to an entity if a group of family members or friends were pooling their money to invest in a syndication or several syndications, but outside of that scenario I don’t see the point to it.
But don’t listen to us, get competent legal and accounting advice from those licensed to give you proper advice after evaluating your legal and financial situation and risk tolerance.
Having said that, as an LP myself in 30+ deals, and collaborating with many other LP's the main reason myself and others choose to invest in syndication via LLC is the anonymity that could come along with it from outside litigation. Thus if someone is say a medical doctor, they may want to shield (or at least make it difficult) for outside liability if they were to be sued personally in their day job or elsewhere. Separately, if one might want to invest as a trust, via the LLC it may make some estate planning slightly more consolidated. One can also just invest via a living trust as well without the LLC. Bottom line as others have said this is a situation to enlist competent legal guidance in this scenario to review the pros and cons.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
1y
@William Coet, as noted, it sort of depends on where you are looking to protect liability.
The most common reason I hear when working with investors who invest in a syndication through their LLC is honestly for ease of bookkeeping and record keeping. Not sure how this helps, but they seem to have a system they like to follow, and their LLCs hold general troughs of investments, i.e. all syndications go in ABC LLC, all direct holdings go in XYZ LLC, etc.
From protecting your liability that may arise from an action taken by the syndication, I can't imagine you would create any real protection there. As noted, any commercial sized assets are already held in an LLC, which it typically the borrowing entity, which is owned by an LLC where the LPs come in. And, in the seemingly exceedingly slim chance that a suit arises that brings tries to bring the LPs into play, chances are those attorneys are not going stop at your LLC, but will try to pierce that veil as well to get to you personally.
And lastly, Duke's point: if you are looking to protect your investment from liabilities that may arise from you personally, that is another matter. In that instance, the framing of the question is no longer around whether you should have an LLC for a syndication, but should you have an LLC, or various LLCs for all of your assets. I, too, have worked with a very successful physician/investor, who formed an S-corp to hold all of his investments in the chance he was subject to a malpractice suit. But this was for everything he owned, home builds, syndications, private businesses, medical centers, etc. Again, shielding his assets from his liability, not to protect him from liabilities that may arise from a syndication.
O Fallon, MO · Member since 2018 · 5 posts · 5 votes
1y
Lots of great points above to learn from. I would just mention one possible benefit - if you are investing with an SDIRA account, there is usually a delay in processing the investment as you have to go through their process and have the custodian sign the investment packet on your behalf. If you set up a "checkbook LLC" for your SDIRA, then I believe (check first with your custodian and/or attorney) that you would be able to invest directly as the manager of your LLC (using the LLC's account), without going through your custodian.
On the other hand, that ability to quickly invest can be a double edged sword, since I think the delay can be a good thing (it forces me to think more carefully about the syndication and take the time to make sure it's a good investment for my SDIRA). You also want to make sure you don't commingle your SDIRA LLC funds/accounts and your personal funds/accounts when investing.
Looking at investing in my first syndication as an LP. Are there any potential problems with investing as an LLC and not as an individual? I'm considering doing it as an LLC to reduce liability.
Thank you
Like all legal items....you should consult with your attorney before making any decisions. I'm not an attorney and this is personal opinion only and not egal advice.
The limited partnership itself already reduces liability (which is why you are called a "limited" partner...because of limited liability). So most investors I know are fine with this.
I have seen some who will stack an additional LLC on top of it...to be "extra safe" in their minds. They may wish to keep their personal name private from the other investors, etc.
One potential downside to investing in an LLC (and that I've seen has cause people to change their minds and switch) is that the tax filing deadline is a month earlier for LLCs versus individuals. And if you're investing in a syndication that typically produces K-1's late in the tax season (such as a GP fund) this can make things very tight and/or cause extra tax bills from having to do estimates extra tax work with your CPA.
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