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Anne_C
Anne_C, Attorney
Category: Business Law
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Experience:  Business litigator, 15 years' experience
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CA business attorney or NV business attorney please. I read

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CA business attorney or NV business attorney please.

I read that Nevada Series LLC offer separate liability protection for each of its branches. It's wonder for rehabing real estate. I am planning to rehab houses in CA using a NV Series LLC and use one branch to hold one house. I am wondering what I need to do with the CA SOS.

Do I need to register the parent NV Series LLC as foreign entity with CA SOS? or do I need to register each branch as foreign entity with CA? or do I need to register with CA SOS at all?

The kind of operation the LLC will be doing in CA is
1) purchase the houses through CA real estate agent
2) hire CA contractor to do rehab work
3) sell the houses through CA broker

Basically, I am saying the LLC doesn't hire any employee or does any substantial work itself. Maybe for this reason, I don't need to register as a foreign entity at all?
Submitted: 4 years ago.
Category: Business Law
Expert:  INFOLAWYER replied 4 years ago.
What do you want to accomplish?
Customer: replied 4 years ago.
I am trying to use Nevada's Series LLC to achieve liability separation and asset prorection at reasonable cost. If something goes bad with one rehab project, i want to make sure the other projects are not subject to the law suit. I am not sure if this strategy will work in CA.

Forming seprate LLC achieves the same thing but given rehab projects are short in nature (hold the property for 3-6 months), it doesn't justify the cost to form one LLC for each house I rehab. The regular way to form an LLC in CA takes a one month and $120 or so.

Expert:  INFOLAWYER replied 4 years ago.
I am going to open this question to my colleagues.
Expert:  Anne_C replied 4 years ago.

I am a California attorney.

 

You will have to register as a foreign LLC operating in California, because that is where you are doing business. The fact that the LLC buys California property using a California Realtor; hires California contractors; and sells the property using a California realtor means that the LLC is doing business in California, even if no person employed by the LLC is doing that work.

 

That means that the setup that you are proposing is going to cause you to be heavily taxed in California, regardless of what Nevada does. California will tax you it's minimum LLC tax rate of $800 an entity. For LLCs, that starts the first year.

 

I would like to suggest the following as a more practical option:

 

  1. Contact the insurance company you are planning to use to ask them if they have a preferred business structure for insuring your business. Find out what, if any difference in price, there is between insuring yourself as an S-Corp or an LLC.
  2. If there isn't a difference, and LLC is usually easier to operate.
  3. Rather than forming separate LLCs, consider forming one LLC to rehab several properties as an ongoing operation. For example, you could form an LLC that rehabs homes in Riverside, and call it "Riverside Rehab LLC" (don't really use that name, find something more personal, of course).
  4. Keep in mind you are going to have to pay a minimum of $800 tax per LLC, and that you will almost certainly have to pay additional insurance for each LLC.
  5. Make sure that your buyer's real estate agent indemnifies you.
  6. Make sure that your contractor indemnifies you, and names you as an additional insured on their insurance policy.
  7. Make sure that your seller's real estate agent fully discloses, and indemnifies you.

 

Customer: replied 4 years ago.
If the company (regardless of its structure) is formed in NV, does that mean law suits against the company have to go to NV court and follow NV law?

When people say NV is a pro-business state, it's basically saying NV laws are pro-business. But what happens to a NV company operating in CA? If CA law prevails, why do people still form companies in NV? For instance, all venture capitalists require the startups they invest in form the company in one of those pro-business states (Nevada, Delaware). There getta be advantages of forming the company in one of those states and register as foreign entity in CA.

Could you give me a few examples? or point me to some references. I am willing to do my own dilligance to read on this subject. I just need some pointers.
Expert:  Anne_C replied 4 years ago.

(Q1) If the company (regardless of its structure) is formed in NV, does that mean law suits against the company have to go to NV court and follow NV law?

 

(A1) No. In fact, if a lawsuit involves problems with, or title to, real property in California, Nevada courts would decline to exercise jurisdiction.

(Q2) When people say NV is a pro-business state, it's basically saying NV laws are pro-business. But what happens to a NV company operating in CA? If CA law prevails, why do people still form companies in NV? For instance, all venture capitalists require the startups they invest in form the company in one of those pro-business states (Nevada, Delaware). There getta be advantages of forming the company in one of those states and register as foreign entity in CA.

 

(A2) The reason that you are not able to take advantage of the pro-business laws in Nevada (and I agree that those laws are pro-business) is that you are dealing with California property, licensed California contractors, and licensed California real estate professionals. Furthermore, by doing business in California, you submit to personal jurisdiction in the state.

 

The difference with venture capitalists fund businesses, not buy property and develop it, or rehabilitate it.

(Q3) Could you give me a few examples? or point me to some references. I am willing to do my own dilligance to read on this subject. I just need some pointers.

 

(A3) I'm not sure what you are asking for, but the legal concept of Subject Matter Jurisdiction (what Courts have the jurisdiction to hear a legal dispute, and why) is the subject of a semester of law school - it's covered in Civil Procedure, which is a 1L subject. This particular topic is also covered in Real Property, which is generally a 2L course.

 

I haven't been able to find free law school materials that cover this topic.

 

Here is a list of Law Review articles covering this topic: http://scholar.google.com/scholar?hl=en&q=%22real+property%22+%22subject+matter+jurisdiction%22+California&btnG=Search&as_sdt=2000&as_ylo=&as_vis=0, but there is a charge to view most of those articles.

 

 

Anne_C, Attorney
Category: Business Law
Satisfied Customers: 2302
Experience: Business litigator, 15 years' experience
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