Posted by JohnBoy on October 31, 2000 at 17:50:48:

I am “President” of my LLC even though I’m a member. Taxes are reported as personal income for tax reporting purposes.


Posted by ScottNovi,MI on October 29, 2000 at 21:10:18:

Hi gang,

I want to thank all for all the rapid responses I get from you, you are making my transition from a green inexperienced investor to somewhat brave and confident one.

My question is I am finding myself holding alot of real estate either by holding until ready to flip or under Lease Option. I think an LLC is the way to go and I am about to speak to an attorney on Wednesday November 1st. I have a gist of what to ask them, but are there any issues I should address that is of the utmost importance.

I know this question is a little vague but any response would be greatly appreciated, especially from any attorney that deals specifically in Real Estate Investing.

Thanks again and heres to everybody’s success!!!

Scott Ferguson
Novi, Michigan


Posted by dewCO on October 30, 2000 at 22:23:44:

The majority here, I think have said C corp. for fleips and LLC for rentals and LO.

Re: LEGAL QUESTIONS ABOUT LLC - Posted by Ginger Harris

Posted by Ginger Harris on October 30, 2000 at 11:52:54:

A couple of years ago we used to buy rentals and move houses no money down. LLC’s are kind of new to Oregon still (maybe about 8 years old) and so I gave my attorney all of the information I received at a LLC seminar and had him look at them on his own time in case I needed any questions answered. He had me write up my own operating agreement which was really helpful because it made me think about every issue I had to address in the agreement. He then looked it over and made suggestions. Some information I had not thought about until issues arose later are: the extra cost to have a CPA do our tax returns because we needed a form 1065. How to legally structure my son working for us so we didn’t have to pay workmen’t compensation on him? How the 1065 earnings affected my personal income tax at a later time (one tax year) was a shock! With 8 kids it kicked us out of earned income credit we had always received!!! No one would loan to the LLC even though I (I’m a real estate broker)wrote up the offers from the LLC. The private investors wanted our personal backing on the loans. What did that do legally? I’d ask your attorney if your liability protection as a LLC is pierced when you must sign personally on the loan? What about taxes? So even though a LLC has the liability protection of a corporation and is taxed like a partnership, I’d ask what acts you, as a member of the LLC, might do that would pierce the corporate veil and expose you and hold you personally liable anyway without the corporate protection? I’d ask how and when you need to make sure you sign as a member of the LLC. There are no Presiden, VP, etc. You and any others are “members” “Member-Managers” and “Organizers”. If you own property and are renting it out I’d ask to make sure how to sign your rental agreements and notices to tenants? I know of a man here in Klamath Falls, OR, that held his property in a corporationa and didn’t know he had to sign notices a particular way and lost $1,500 to the tenant because of something that had to do with him signing the notices in his personal name instead of the corporation? I have represented our LLC in court because I think I remembered finding that I could as a member of the LLC but could only have a lawyer represent me if I had been part of a corporation. (Or otherwise our small, behind-times courts just didn’t know :slight_smile: ) I’m not sure, but I’d ask that also. Looking over several sample operating agreements (I found two easily years ago when I did it) will help you understand exactly what you might also want to ask your lawyer. Hope this helps you think. Ginger Harris

Re: LEGAL QUESTIONS ABOUT LLC - Posted by Rod Wilson

Posted by Rod Wilson on October 29, 2000 at 23:01:28:

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Posted by JohnBoy on October 31, 2000 at 18:08:13:

Also, anything you do personally has nothing to due with the LLC. IF, someone was to sue me “personally” and they found out about my LLC and they wanted to go after any assets owned by the LLC and attach my share of the assets in it, then upon succeeding in being able to do so, they must get a “charging order” to get any assets that would be distributed to me as my share for that year. BUT! If I have my managing agent elect to NOT disburse anything to the members for that year and claim it’s in the best interest of the LLC to leave everything in it instead. Even though everything would be left in the LLC that year instead of making any disbursements the IRS says you still must pay the tax on that. Since their is a “charging order” against you and since you didn’t take any disbursements out that year, guess who gets the tax bill??? You guessed it! The creditor holding the charging order against you gets stuck paying your taxes owed! Now how fast do you think that creditor will want to make a settlement once they get stuck paying your taxes every year? Do I hear two cents on the dollar??? Or do you want to pay my taxes for years to come??? Is this a great country or what!!!

If you take title to a property in the LLC and even if you had to personally guarantee the loan, that won’t pierce the LLC for creditors to get at the LLC. You will remain liable personally to the lender, but it has nothing to do with anyone or anything else being able to go after the LLC for something you were sued personally for.