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Started By
Message
Thoughts on whether I need a LLC or not
Posted on 5/19/22 at 10:33 am
Posted on 5/19/22 at 10:33 am
So I’m going to try to lay out the circumstances and see what the board thinks
I recently purchased a commercial rental building (strip center) and formed a LLC to put it in in order to protect my other personal assets (a significant amount, can get more specific if I need to).
This is just the way I’ve always been told to do things so I assumed that’s what I needed to do. Well at closing the transactional attorney who handled the deal (a very well known and successful local attorney) told me putting it into a LLC was a mistake. When I asked why he gave me these reasons:
1. What are you going to do to get sued? You only own the building you aren’t operating any of the businesses. Your risks are essentially someone slipping in the parking lot (I’d argue there’s much more risk than this) and you have insurance coverage for all of that
2. The LLC doesn’t actually protect any of your other assets anyways
3. This is the most important factor, the state of Tennessee has a tax on every LLC based on its value so in theory this LLC could cost $2-4$k in taxes every year just for existing
Normally i would defer to the professional but this is so contrary to everything I’ve been told I thought I’d gather some opinions from the wise men and women of the money board
I recently purchased a commercial rental building (strip center) and formed a LLC to put it in in order to protect my other personal assets (a significant amount, can get more specific if I need to).
This is just the way I’ve always been told to do things so I assumed that’s what I needed to do. Well at closing the transactional attorney who handled the deal (a very well known and successful local attorney) told me putting it into a LLC was a mistake. When I asked why he gave me these reasons:
1. What are you going to do to get sued? You only own the building you aren’t operating any of the businesses. Your risks are essentially someone slipping in the parking lot (I’d argue there’s much more risk than this) and you have insurance coverage for all of that
2. The LLC doesn’t actually protect any of your other assets anyways
3. This is the most important factor, the state of Tennessee has a tax on every LLC based on its value so in theory this LLC could cost $2-4$k in taxes every year just for existing
Normally i would defer to the professional but this is so contrary to everything I’ve been told I thought I’d gather some opinions from the wise men and women of the money board
8
Posted on 5/19/22 at 10:37 am to Wishnitwas1998
quote:
What are you going to do to get sued?
Sounds like great advice from an attorney
Posted on 5/19/22 at 10:47 am to Mingo Was His NameO
Go ask the Slutty vegan lady
Posted on 5/19/22 at 11:00 am to Wishnitwas1998
I’m an attorney and I disagree with just about everything the guy said.
I also think it’s absurd that this guy was offering you legal advice.
I also think it’s absurd that this guy was offering you legal advice.
Posted on 5/19/22 at 11:02 am to Wishnitwas1998
Sounds like the attorney personally feels your inherent risk is low enough to try to save some change come tax time.
Posted on 5/19/22 at 11:32 am to Wishnitwas1998
Points 1 and 2 are stupid and I question any attorney that would give this advice. I'll defer to him on point 3, but that may just mean you should have done a limited partnership instead of an LLC, but any commercial/business assets or rental property should generally always be held in some form of an entity and not in your individual name.
Posted on 5/19/22 at 11:53 am to Wishnitwas1998
As another poster pointed out, points 1 & 2 are Bs. And as an attorney, he should be telling you all of the creative ways people could try to sue you and how to better protect you; not shitting on your plans. And if you want to get extreme, do you think the lawsuits with all of these mass shooters look at the building owners of these malls, movie theaters... and think we won't include them in the lawsuit they just own the building.
This is a question for a CPA or tax attorney based in TN. So, unless this is where he practices, he shouldn't comment here. In LA, there is a franchise tax based on the Retained Earnings value left in the company; you don't leave the funds in there, you don't get taxed. However, you can be taxed on the withdrawal of the funds; so either way you're getting taxed.
quote:
3. This is the most important factor, the state of Tennessee has a tax on every LLC based on its value so in theory this LLC could cost $2-4$k in taxes every year just for existing
This is a question for a CPA or tax attorney based in TN. So, unless this is where he practices, he shouldn't comment here. In LA, there is a franchise tax based on the Retained Earnings value left in the company; you don't leave the funds in there, you don't get taxed. However, you can be taxed on the withdrawal of the funds; so either way you're getting taxed.
Posted on 5/19/22 at 12:28 pm to theOG
quote:
I also think it’s absurd that this guy was offering you legal advice.
He was offering free legal advise and OP got his money's worth
Posted on 5/19/22 at 12:35 pm to theOG
I appreciate the responses and am glad to see yall confirming what I thought. What he said was contrary to everything I’ve ever known or been taught
It kind of shocked me given the good reputation this guy has
And I can confirm that Tennessee has some sort of franchise/excise tax on LLCs bc my other LLCs have to pay it but they are only about $500/year and I’m not sure what it’s based on but their collective worth is about a quarter of what this is
It kind of shocked me given the good reputation this guy has
And I can confirm that Tennessee has some sort of franchise/excise tax on LLCs bc my other LLCs have to pay it but they are only about $500/year and I’m not sure what it’s based on but their collective worth is about a quarter of what this is
This post was edited on 5/19/22 at 12:37 pm
Posted on 5/19/22 at 1:57 pm to theOG
quote:
I also think it’s absurd that this guy was offering you legal advice.
Do you think it's more likely this well known attorney was giving shotty advice on the fly or the op mischaracterized the conversation?
It does seem like we are a dealing with a person who just bought a strip mall using Google for his legal advice.
Posted on 5/19/22 at 1:59 pm to TSLG
quote:
It does seem like we are a dealing with a person who just bought a strip mall using Google
Huh?
Posted on 5/19/22 at 2:17 pm to Wishnitwas1998
I see that you're in Tennessee. TN has different laws than LA, but the LA limited liability act loosely follows the model act, and I assume Tennessee's does as well. This is not legal advice and I'd definitely recommend consulting a(nother) Tennessee attorney about this, but overall I'd say this guy gave you really bad advice.
This is terrible advice. The building and the rents you generate from the building is a business in and of itself. The LLC does afford you protection in the sense that unless you are committing fraud, commingling assets, or generally not complying with any corporate formalities, the LLC stands as its own separate, distinct entity separate and apart from its members. Think of yourself and the LLC as totally separate people. Thus, any plaintiff does not have a right of action and likely can't allege a sufficient cause of action against you personally in the event he sues the entity. In the event you do get named as a defendant in a lawsuit, a competent attorney should be able to get you dismissed pretty easily unless you're screwing up (google piercing the veil).
The risks involved in owning and leasing space in a strip center go far beyond somebody slipping and falling in the parking lot.
Also terrible advice. Essentially the same answer as above. As a member of an LLC, you are not personally liable for the debts of the LLC.
No idea, but $2,000-$4,000/yr for protection from personal liability stemming from the ownership of a strip center is pretty cheap. I'd consult with a tax attorney or a CPA in Tennessee about this one to confirm.
Disclaimer: I'm not your attorney and I'm not licensed in TN. When run correctly, an LLC is an excellent way to shield yourself from personal liability. That said, it's only as a defensive as you make it. If you are using it as your personal checking account or doing anything that could subject you to piercing the veil, it's not worth your time or money to keep up with. In either case, you need to make sure that you are adequately insured.
quote:
1. What are you going to do to get sued? You only own the building you aren’t operating any of the businesses. Your risks are essentially someone slipping in the parking lot (I’d argue there’s much more risk than this) and you have insurance coverage for all of that
This is terrible advice. The building and the rents you generate from the building is a business in and of itself. The LLC does afford you protection in the sense that unless you are committing fraud, commingling assets, or generally not complying with any corporate formalities, the LLC stands as its own separate, distinct entity separate and apart from its members. Think of yourself and the LLC as totally separate people. Thus, any plaintiff does not have a right of action and likely can't allege a sufficient cause of action against you personally in the event he sues the entity. In the event you do get named as a defendant in a lawsuit, a competent attorney should be able to get you dismissed pretty easily unless you're screwing up (google piercing the veil).
The risks involved in owning and leasing space in a strip center go far beyond somebody slipping and falling in the parking lot.
quote:
2. The LLC doesn’t actually protect any of your other assets anyways
Also terrible advice. Essentially the same answer as above. As a member of an LLC, you are not personally liable for the debts of the LLC.
quote:
3. This is the most important factor, the state of Tennessee has a tax on every LLC based on its value so in theory this LLC could cost $2-4$k in taxes every year just for existing
No idea, but $2,000-$4,000/yr for protection from personal liability stemming from the ownership of a strip center is pretty cheap. I'd consult with a tax attorney or a CPA in Tennessee about this one to confirm.
Disclaimer: I'm not your attorney and I'm not licensed in TN. When run correctly, an LLC is an excellent way to shield yourself from personal liability. That said, it's only as a defensive as you make it. If you are using it as your personal checking account or doing anything that could subject you to piercing the veil, it's not worth your time or money to keep up with. In either case, you need to make sure that you are adequately insured.
This post was edited on 5/19/22 at 2:21 pm
Posted on 5/19/22 at 2:25 pm to TSLG
quote:
It does seem like we are a dealing with a person who just bought a strip mall using Google for his legal advice
frick off
1. This isn’t google
2. If you think this is the only place or people I have asked you are mistaken. It’s called getting advice from multiple places
This post was edited on 5/19/22 at 2:26 pm
Posted on 5/19/22 at 4:45 pm to Wishnitwas1998
On 3), there absolutely will be a sizable amount for TN F&E tax. .25 per every $100 of fixed assets, along with 6.5% on all income not subject to SE tax. So if this is a $1M building there’s $2500 of franchise tax. And say it shows 20k of net income, there’s another $1300 of excise tax.
Posted on 5/19/22 at 8:57 pm to Wishnitwas1998
You should be getting your tenants to carry a sizeable amount of liability insurance and indemnify you.
Posted on 5/20/22 at 9:43 am to diat150
quote:
You should be getting your tenants to carry a sizeable amount of liability insurance and indemnify you.
Absolutely, but that is still not a substitute for adequate insurance and corporate protection.
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