LLC formation and maintenance in TX, TN, FL

[Parker Zhou]

Hi - currently have 12 doors and am looking to start moving them into LLCs. I'm looking for some best practices on starting and maintaining LLCs in TX, TN and FL (on a cheap basis…not trying to do everything using a service or having each single family home in each LLC as that would make costs balloon out of control). Mostly looking for advice on whether people filled themselves (or if they have a service they recommend), whether they have a separate bank account for each LLC, what they did for insurance and what they did for the various annual filing requirements. Thanks

[Ryan Coon]

Hi Parker,

This is a great question, and given the markets that you're in you do have some great potentially more affordable options.

First, both TX and TN recognize "Series LLC's" which can be great options for optimizing asset protection and separation of properties at a lower cost than 1 LLC per property. The way it works is that you set up a Series LLC, then you setup individual "Series" or "Cells" under the series LLC for each property. These cells as recognized as separate entities from an asset protection perspective, but can be significantly cheaper to setup and maintain (no or minimal state filing fee and/or annual renewal for the cells). Thus, you could have just one series LLC in TX and one in TN, with each having individual cells for each property in those respective states. I do typically recommend individual bank accounts for each cell but I see some variance on this and you can sometimes forego individual bank accounts in favor of just a single bank account in the series LLC as long as you have strong bookkeeping that meticulously separates income, expenses, etc. of each cell (e.g. by using a classing or similar bookkeeping system).

It is important to note, however, that TN has a franchise tax that requires careful structuring to avoid by ensuring that the entity structure qualifies for the FONCE (Family-Owned Non-Corporate Entities) exemption. Thus, while I always recommend working with qualified attorneys and tax professionals, it is especially important to do so in states like TN where you could easily dramatically increase your tax liability if things are not set up appropriately.

In Florida, land trusts present a unique opportunity. By statute, Florida has provided asset protection benefits to land trusts. This coupled with the fact that Florida has not generally provided very strong asset protection to LLCs, Single-Member LLCs in particular, Land Trusts can both help fill that gap while also being a more affordable option. I often recommend using Land Trusts for each property with those land trusts all being owned by a single FL LLC. In this scenario the FL LLC acts similarly to the series LLCs in states like TX, and the Land Trusts act like the cells to own the individual properties. The nice thing is that Land Trusts are often much cheaper to setup, have no annual fee (they are not filed with the state), and don't even need to have their own bank accounts (all banking/accounting can be done at the FL LLC level).

The idea behind separate entities for each property, be it cells, land trusts (FL), or LLCs, is to silo off the assets from each other to prevent one assets liabilities from exposing other assets, thereby minimizing the amount of exposure that you have to a single lawsuit or incident.

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