LLC / insurance - Posted by tim

Real Estate Investing
1

Posted by Tom Dunn on December 13, 2006 at 20:32:43:

Once you form your LLC and put your properties in it, your liability should be limited to the equity you have in the individual properties. Unless the umbrella policy lists your LLC as the insured, it won’t come into play.

Based on my experience the number one reason a corporate veil is pierced is failure to conduct business in a consistent and business-like manner and failure to keep personal and business finances seperate and distinct.

Blessings,

Tom Dunn
DealFiles.com

2

LLC / insurance - Posted by tim

Posted by tim on December 13, 2006 at 19:56:01:

I have rental properties that I own in my name. I also have a $1 Million umbrella liability policy.

I’m considering forming an LLC for my properties. If I do this, would my umbrella liability policy do anything to protect the equity in my properties?

Another concern with an LLC is the issue of capitalization. I’ve heard from attorneys that the number one reason a corporate veil is pierced is under-capitalization, and I don’t have very much cash (all in equity).

Any comments on these concern would be appreciated.

3

Re: LLC / insurance - Posted by Frank Chin

Posted by Frank Chin on December 14, 2006 at 07:32:13:

Tim:

If you have concerns over risk, then:

  • Increase the umbrella. A few years ago, I increased mine from 1MM to 3MM, and its not that much more, a little under $200.00 more per year, and it covers liability relating to auto as well.

  • Here, I can go up to five properties without a ommercial umbrella.

  • Make sure you got most things covered such as flood insurance etc.

Here in NYS, there is few of $800.00/year per LLC, night not be the case where you are.

As to shielding yourself via an LLC, I own a business thru an LLC, but when the last owner had someone suing them, the plaintiff sued the company AS WELL as the owner ANYWAY.

Some lawyer can sue the LLC, and you as the manager of it, for negligience. So I wouldn’t count the LLC as a shield even if it’s well capitalized.

In fact, the importance of insurance is underscored when I had a slip and fall, and someone threatened to sue me, and I filed a claim with the insurance, It was frivolous claim as the guy wanted to get paid going to a chriropractor everyday for three months.

This guy was so upset he later hired a lawyer who also got nowhere with my insurance company, and lately HIS LAWYER did not return his calls.

He was so disgusted that he asked if I can PAY something for him to go away. My answer was “sorry, why and I paying insurance??”

Remember, the insurance pays the legal bills in the meantime. And if you have insurance, notify the insurance company immediately of any claims. I was more than 30 days notifying in the case above, and they told me they might not pay, but as it turned out, the plaintiff might have picked the wrong attorney, who got nowhere.

Frank Chin

4

Undercapitalization - Posted by Jimmy

Posted by Jimmy on December 14, 2006 at 06:43:50:

There is no rule that says cash is the only capital that counts. and Tom is right, the most common reason courts aare willing to ignore an entities is the failure of the owners (shareholders, members, partners, whatever) to respect the integrity of the entity.