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Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 45682
Experience:  32 years of experience practicing law and a businessman.
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I am in the process of filing a LLC (using legalzoom.com).

Customer Question

I am in the process of filing a LLC (using legalzoom.com). The LLC will be used to manage a potential Hawaii property rental that we will buy in the future, so currently there are nothing in the corp yet.Several questions to the form that I don't know how to answer:
1. Management: how will the LLC be managed? My wife and I plan to manage the company but obviously we will hire someone in HI to help us manage the property. Should the answer to this question be Managed by all members or by more than 1 managers?
2. Officers: what are the pros and cons and tax impact if we assign us titles vs. no titles?
3. Capital contribution--since we haven't bought any property, what should we put here? And is this the same amount as the property value or it's asking different things?
4. Ownership %: this LLC will be owned by my wife and I, but eventually we will want to create a trust--should we do 50/50 and when we set up the trust, we move the ownership of the LLC as part of the trust filing?
5. Transfer of ownership: does this dictate the transfer of ownership for the property that we buy/sell, or just the LLC ownership?
6. Tax set up: what's the difference between pass through vs as a corp?
Submitted: 1 year ago.
Category: Business Law
Expert:  Richard replied 1 year ago.
Hi there. I have addressed each of your questions in capitalized type below...
. Management: how will the LLC be managed? My wife and I plan to manage the company but obviously we will hire someone in HI to help us manage the property. Should the answer to this question be Managed by all members or by more than 1 managers? YOU CAN PUT THAT YOU AND YOUR WIFE WILL BOTH BE MANAGERS. THEN, AS MANAGERS, ON BEHALF OF THE LL, YOU WILL ENGAGE THE PROPERTY MANAGER TO REPRESENT THE LLC.
2. Officers: what are the pros and cons and tax impact if we assign us titles vs. no titles? BECAUSE THE LLC WILL BE MANAGED BY THE TWO OF YOU AS MANAGERS, THIS REALLY HAS NO RELEVANCE. YOU DO NOT NEED TO ASSIGN OFFICER POSITIONS.
3. Capital contribution--since we haven't bought any property, what should we put here? And is this the same amount as the property value or it's asking different things? HERE YOU SHOULD PUT THAT YOU WILL CONTRIBUTE WHATEVER EQUITY FUNDS ARE NECESSARY TO ENABLE THE LLC TO ACQUIRE THE PROPERTY THAT YOU INTEND TO BUY.
4. Ownership %: this LLC will be owned by my wife and I, but eventually we will want to create a trust--should we do 50/50 and when we set up the trust, we move the ownership of the LLC as part of the trust filing? YES, MAKE THE OWNERSHIP 50/50 AND THEN WHEN YOU SET UP THE TRUST, SIMPLY ASSIGN YOUR OWNERSHIP INTERESTS TO THE TRUST.
5. Transfer of ownership: does this dictate the transfer of ownership for the property that we buy/sell, or just the LLC ownership? YOU WILL WANT TO ADDRESS BOTH THE SALE OF THE PROPERTY AND THE SALE OF OWNERSHIP INTERESTS IN THE LLC.
6. Tax set up: what's the difference between pass through vs as a corp? WHEN OWNING REAL ESTATE, YOU WANT TO USE A PASS THROUGH ENTITY SO THAT YOU DON'T GET TAXED TWICE...ONCE AT THE CORPORATE LEVEL WHEN YOU SELL THE PROPERTY AND ANOTHER WHEN YOU TRY TO GET THE MONEY OUT. A PASS THROUGH ENTITY DOES NOT PAY TAX AT THE ENTITY LEVEL AND SO EVERYTHING JUST FLOWS DIRECTLY TO THE OWNERS THEREBY AVOIDING DOUBLE TAXATION.
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Customer: replied 1 year ago.
Thank you for the prompt answer. I just have a clarification question: for #3 on equity contribution: we plan to finance 80% to buy the rental property. So should we say the capital contribution is the 20% down payment, or we should really specifies the entire down payment+mortgage?
Expert:  Richard replied 1 year ago.
You're welcome and thanks for following up. You can specify that you intend to provide 20% equity and to finance the remaining portion; but if you do, you want to also provide that if you can't obtain 80% financing, that you will contribute the excess amounts necessary to obtain financing. You will also want to add that this requirement is only an agreement among the members and cannot be relied upon or enforced by third party creditors of the LLC. This avoids a creditor of the LLC from being able to make a claim that this contribution obligation is an asset of the LLC and thus can be enforced by a third party creditor with a claim against the estate.
Customer: replied 1 year ago.
Thanks. The legalzoom form doesn't allow me to enter all the fine prints though. Should I use the 20% as equity contribution? Why is this question being asked by the way? Will it be used as asset that are subjected to future liability as you suggested?
Expert:  Richard replied 1 year ago.
You're welcome. Yes, that's fine..just use the 20% number. It's not a big deal when you and your wife are the only members. But, where you have other members, the Operating Agreement is what spells out the obligations of all the members and it's important to set out what each member is required to contribute. But, if you had a bunch of outside members, you probably wouldn't want to use the cookie-cutter legalzoom form. :)
I'm heading to a dinner break; if you have any follow ups, I will address them immediately upon my return; I apologize for any inconvenience and appreciate your patience!
Customer: replied 1 year ago.
Thanks for your help. I understand that I need to rate to finish so if you could reply next in the form of a answer next, I will rate. Thanks for the excellent service!
Expert:  Richard replied 1 year ago.
You're welcome...it's been my pleasure to help you! Take care!
Richard, Attorney
Category: Business Law
Satisfied Customers: 45682
Experience: 32 years of experience practicing law and a businessman.
Richard and other Business Law Specialists are ready to help you
Expert:  Richard replied 1 year ago.
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!

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