In this transcript from a video by Gale & Vallance, Andy Gale, a corporate attorney based in Orange County, discusses key considerations for property owners thinking about forming a limited liability company. He covers the pros and cons of holding properties in an LLC, the associated costs, and whether it’s better to use a single umbrella LLC or multiple LLCs.

This video provides insights on Limited liability company benefits California, but it does not constitute legal advice. For guidance tailored to your specific situation, we recommend contacting a qualified attorney.

Transcript

Introduction and Greeting [00:00:01 – 00:00:26]

Hi, Mark. It’s me Andy Gale. I’m just responding to your email message. Hope you’re having a good long weekend. Let me sort of walk through the answers to your questions just quickly if I could. Here was your email and here’s the quick read, and what I’d like to do is sort of take the questions in reverse order if we could.

1. Pros and Cons of Having Properties in an LLC [00:00:26 – 00:02:49]

(1) What are the pros and cons of having the properties in LLC (especially the cons)?

I would say the cons probably are the cost of setting up the LLC. Once you’ve got the LLC built I recommend that my client do an annual legal maintenance of their annuity. That means we, the small business lawyers, treat it like we would pretty much a corporation. We would have an annual meeting. There would be a series of questions that we would walk through to see what was happening, what was not happening in the LLC.

Small business lawyer Orange County California would actually keep formalized records, so in the event that our limited liability company was attacked in a lawsuit or by the government we could clearly establish through good record keeping that in fact we had treated it like a business, and that we were intending to use it in such a way that we were trying to limit our liability.

Another con to running an LLC would be that on an annual basis, you have to prepare a tax return and in the state of California there is at least a minimum franchise tax fee of $800 due every year.

Now the pros are big ones and that it shields all of your other assets from anything going wrong with the asset that you have placed in the LLC. So if you created a rental property, you placed it in the LLC and then someone is using your rental property and they get asbestos poisoning or something like that. If they sue, they’re only going to be able to get the assets that are inside the limited liability company rather than all of the other assets that you worked so hard to put together.

So, there’s a massive pro to it and most people would look at it like another layer of insurance. The smartest thing to do is have a big insurance policy. Make sure that you have an umbrella insurance policy and then they like that extra layer of protection of having that business entity that protects you as well.

One of the ways to look at it is that, it’s a lot of money to set it up and run it on an annual basis, but if you got into a problem, you’d happily pay five times that amount of money not to be in the lawsuit and so it’s one of these preventative kind of things like fire insurance. I mean, I’ve had fire insurance on my house. I’ve owned it for 25 years, never once had a fire. And I’ll tell you the day that I do have a fire is the day that I want to have it. That’s kind of the flaws beyond setting up an entity like this.

2. Cost of Setting Up an LLC [00:02:52 – 00:03:21]

(2) What is the ball park figure of trying to set up an LLC?

I’d do it in two ways. I can set you up in annual program that pays monthly. That’s $187 a month. A lot of my clients kind of like that smaller amount of money that they can budget into putting together the entity. Or if you prefer to just pay it in one flat fee, the way that I’d do it is in one lump sum $2000 and I can break that up into two payments because it takes about 4 – 5 weeks to get it all set up, so a thousand to start and a thousand when we’re done.

3. Single Umbrella LLC or Multiple LLCs [00:03:25 – 00:04:07]

(3) Lastly, do I think it’s best to have it in one umbrella or not?

I almost always do the analysis based on the amount of assets that we got on the LLC. One is easier to take care than multiple LLCs, but if I get $250,000 – $500,000 worth of equity in one LLC, it starts to be too much money at risk in one.

So if I have multiple rental properties and they’ve got a couple of hundred thousand dollars something like that in each, then it might be worthwhile of going through the cost and trouble of the taxes and the annual operation or the annual maintenance. It might be worth it to do it. I would say most people would look at it in terms of how much equity do I have in the LLC and maybe I should break it down, kind of how many eggs in one basket do I want to have.

So, those are my thoughts on your questions.

Conclusion: Limited liability company benefits California [00:04:12 – 00:04:45]

I certainly hope that helps you. I really look forward to meeting you and hopefully we can get started on this project. Thanks for shooting me your email and maybe we’ll meet soon.