Posted by John Merchant on July 01, 2010 at 22:55:58:
It would be smart of you to have a sit-down with one of the State Sec regulators to see what they’d require, upfront, before soliciting any potential investors at all.
Once you commence, if all hasn’t been done that the Sec guys would require, you’re already in potential violation of sec. law.
Few questions about LLCs - Posted by HHansen
Posted by HHansen on June 29, 2010 at 18:25:28:
I want to set up a real estate company, with investing partners and passive investors in out of state cash-flow properties, and I am looking into LLCs.
I heard the best way of setting up a real estate structure is to set up an LLC for your company and then an LLC for each investment property you acquire - Then the Company LLC owns the investment property LLCs.
Since I live in California am I required to set up the Company LLC in California?
For the investment properties LLCs, should I set those up in the states they are located in?
Can an one state LLC own an LLC owned in another state?
If a passive investor invested in one property - would they need to be an investor in that property’s LLC or the company LLC)?
Are LLCs really time intensive and expensive to manage?
And finally - can you really use a program to set up your LLC (Like Bronchick) or would I need to use his program and a lawyer?
Re: Few questions about LLCs - Posted by Peter Fischer
Posted by Peter Fischer on July 12, 2010 at 23:26:34:
First, I am a lawyer (in California) so that is why I feel qualified to
answer this.
There is no need to run this by any regulators as what you need is a
competent business attorney who will assist you and understand all the
facts.
First, you CAN incorporate or form your LLC in another state even if
you live in California. 2 states that are often used are Delaware and
Nevada and there are certain tax and business-law reasons why
someone might do so (which I won’t go into detail on here, but you
should speak to an attorney about). Keep in mind though, that even if
you form your LLC in another state, if you are transacting business in
California, you must register that LLC here so its “foreign qualified” so
if you’re only registering out of state to save on franchise tax it doesn’t
make sense.
Next, yes, an LLC formed in one state certainly can own an LLC formed
in another. Whether or not this structure is best for you would really
depend on the facts of the specific investments you are doing and your
partners, etc.
Now, this brings up the separate fact of securities laws and your need
to abide by them (both state and federal). If you are “selling”
membership interests in an LLC and your investors are going to be
passive (ie. not active in the management of the LLC) you are selling
securities. It does depend to some degree on how “active” or “passive”
your investors are also whether your LLC is member-managed or
manager-managed, but again the facts are specific and you will need
an attorney to review your structure.
BUT keep in mind that in California in particular, membership interests
in a manager-managed LLC (which most likely your LLCs will be) are
presumed to be securities and you must comply with federal and state
securities laws and most likely sell your membership interests under an
exemption to the registration requirements and perhaps through a
private placement memorandum (documents for which you most
certainly need an attorney).
Finally, LLCs do require proper setup, proper corporate formalities
(minutes, meetings, etc.) and proper separate books and records, bank
accounts, etc.
You definitely need to talk to an attorney about your situation before
you proceed and get advice specific to your situation (meaning that my
advice above is only meant to be general and NOT specific to your
situation or specific advice to you).
Hope that helps.
Securities law issues - Posted by blubird
Posted by blubird on June 30, 2010 at 10:57:26:
You’d best be very cautious about bringing in, or soliciting for “passive investors” as that would likely constitute sale of unregistered securities and a violation of state and/or federal securities laws.
I can name a number of well known REIs who’ve become entangled with our state’s sec. regulatory agency, some of whom have been fined heavily and ordered to “cease and desist” such illegal activities.
Re: Few questions about LLCs - Posted by Holly Hansen
Posted by Holly Hansen on August 11, 2010 at 17:19:16:
Hi Peter,
I just wanted to take the time to thank you!
You did a terrific job of answering my questions.
Can I call you sometime? I am investigating/researching what it really takes to set up a real estate investment business.
Thanks!
Holly Hansen
Re: Securities law issues - Posted by Holly
Posted by Holly on June 30, 2010 at 14:16:38:
Thank you - for calling this out - I realize that for the Securities law issues, I have to be very careful about soliciting passive investors, namely I cannot solicit them with a specific property, I have to have a pre-established relationship with them - prior to offering them an opportunity,etc.
At this point I really want to make sure I set up the legal structure right to protect everyone, the investing team and the investors. And that was the nature of my inquiry to the forum.
Best!
Holly
Re: Few questions about LLCs - Posted by Peter Fischer
Posted by Peter Fischer on August 14, 2010 at 01:59:47:
Hi Holly, glad to help! Feel free to email me or
Call my office @ 310.684.3640. I look forward to speaking!
Peter