It depends on what you mean by “setting up an LLC via the internet.” Do you mean using one of the services advertised via the internet? Or do you mean logging on to your state’s secretary of state web site and following their procedures for applying through the internet?
If the latter, that’s how I did it; easy, painless, and quick; I had mine finished in a few minutes.
If you mean the other way, I have no comment as I’m not aware of what they provide with their services. I purchased Bronchick’s asset protection course for my materials; he provides you step-by-step guidelines for not only forming these entities, but HOW to legally maintain the structure for maximum protection! Having an entity without knowing how to maintain it (or having to go back to the people who sold it to you for advice for how to maintain it at additional cost) doesn’t seem to me a smart way of doing things.
I have a very important question that goes against the grain of what almost everyone talks about in the realm of business entities.
My uncle is a very prominent and respected CPA in southern California. He told me that rather than form an LLC for my real estate business, I should instead consider forming a sole proprietorship AND use an “umbrella” insurance policy that would cover me above and beyond my other insurances in case of a lawsuit. He also told me that as far as taxation and yearly fees are concerned, I should keep things simple and just form a sole proprietorship. He claims that out of his MANY clients and 30+ years of experience, he has yet to see an LLC be a benefit, but rather he has seen LLCs (especially in California) cost his clients way more stress and financial burden than they would have had with a sole proprietorship and an umbrella insurance policy. He also said that LLC’s can be very difficult to dissolve vs. a sole proprietorship. Obviously, he is contradicting what gurus such as Diane Kennedy, author of “Loopholes of the Rich” are preaching! What are your thoughts on this? I would greatly appreciate them!
I do not agree with your uncle. My experience the last several months in CA is that insurance companies are interpreting coverage more conservatively. As a result, claims that may have been defended previously are being denied. As a result, having insurance coverage is no benefit when the carrier refuses to defend (and we are not talking whether the carrier will pay a claim). So if you are relying on your insurance coverage which should be both a primary and an umbrella policy, you are at risk if your carrier refuses to defend and/or pay a claim. You have the added uncertainty that you may have purchased a policy from a insurance company which is now or rapidly becoming insolvent. If that occurs and your insurance company is not an admitted carrier in CA, you are basically out of luck and “bare”.
For all of these reasons, I urge my clients to seriously consider forming LLCs. The costs are much greater than doing business as an individual or in a partnership but you sleep better at night…and in case you have missed it, CA is litigation prone.
Re: LLC’s aren’t what they are cracked up to be? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on February 27, 2003 at 09:20:47:
LLC is nothing more than insurance against a pretty remote event…being sued, losing big, and insurance not covering. We insure against remote (but crushing) events all the time…e.g. - life insurance. In addition, the existence of an asset protection plan serves as a deterrent against “litigation lottery” types. One always compares the cost against the benefit - and in CA, the cost is quite high, much higher than anywhere else. I’d probably still use an LLC there (I have a large enough business), but probably no fancy multiple-entity structures.
Good point, especially in CA - Posted by Diane (TX)
Posted by Diane (TX) on February 26, 2003 at 19:33:51:
One size doesn?t fit all. State tax considerations often play a major part in form of entity decisions. LLCs can be pretty costly in CA. First, there?s the annual fee (or do they call this a tax?) of $800. Everybody has to pay this. Then, there?s another fee the LLC may have to pay, based on gross receipts. That can add up pretty quickly, and CA keeps raising the amount. As far as ease of dissolution, as I recall it was a pain. CA does not make anything easy.
The idea of the umbrella liability policy has merit. Consider it.
My LLC saved me from bankruptcy. A business associate was threatening to sue me (he had a legitimate claim) but when he found out my business was in the form of an LLC, he changed his tune and we proceeded to work out a settlement that would keep me out of bankruptcy.
How can an LLC can cause “stress and financial burden?”
Also, these insurance policies have caps that they will not pay out above. What if you ge sued for an amount greater than what the policy will pay?
Before I had my properties in an LLC, everybody knew my business. People would come up to me and start asking about a property I bought here or there and I didn’t really like that. Plus once it is known that you are accummulating assets, you become a target for a scam or a frivolous lawsuit.
I have never dissolved an LLC, but my attorney told me that it can be done, but any unresolved liabilities revert to you personally, so he didn’t recommend that one be dissolved until you were SURE that business was wrapped up with that particular LLC.
You said that your uncle hasn’t seen a benefit to LLC’s in the past thirty years, well I should think not. The LLC is a rather new legal form. I don’t think it has been in existance for more than ten years. So the first 20 years of your uncle’s experience doesn’t count since there was no such thing as an LLC then.
I hope no one ever proves me wrong, but I believe an LLC is the best protection because it has helped ME.
I would rather pay the annual LLC registration fee, and have 1) my privacy and 2) an extra layer of legal protection. For me it’s worth it.
Thanks so much for your feedback on this. I believe that you are right. I am just somewhat baffeled by the fact that my uncle is an extremely sharp and prominent CPA, has many very wealthy clients here in Orange County, and is giving me advice that is contrary to what everybody else is telling me. Indeed, LLCs are expensive in California, but what you are telling me about insurance companies not coming through on coverage is quite scary. For now, I think that I will form an LLC as soon as I have a few solid deals under my belt and I have something that somebody might sue me for. Paying out the high fees while I’m still starting out doesn’t seem to make sense for me to do yet. I will most likely cross that bridge when I come to it! By the way, can you believe these gas prices! I’m starting to think that California is too expensive for more reasons that just LLC fees…
I was wondering, I’m just starting buying rentals and putting them in my name, how difficult would it be later to put them in an LLc? I also thought of this, later down the road, the ones I own I could lease them to a LLc management company I create to protect my assets. I would have created an LLc already but in my state, Wi. their needs to be at least 2 people to form one. (not married and have no partners). any suggestions, DR
Posted by Rich[FL] on February 27, 2003 at 05:41:52:
Here’s an idea I just used…my wife and I created living trusts for us personally last year; when I formed my LLC here in FL this year (easy to do, BTW), I made the trusts the members of the LLC and I am the manager. So, I have a manager-managed LLC. Thought I was going to have a problem with the bank when I opened up a business checking account - they wanted to see the trust documents - but everything turned out OK. Don’t know if that will work for you…
Transferring property to LLC is “easy”…just quit claim the property to the LLC!
Rich
PS: if you want to learn more about the advantages of LLCs and other asset protection devices, do a search and read through all the free stuff on the site here about those topics, and/or pay the relativly inexpensive amount he’s asking for the material and get Bronchick’s materials on asset protection.
Hi! I am a bit new to this but have been told you can set up a LLC via the internet. Any thoughts on the legitimacy of doing it this way? It is certainly much cheaper than going through an attorney. I’m just not sure if it is legitimate. Any advise? Thanks in advance.