The Great LLC Debate

Posted by David Kanne on Tuesday, June 3rd, 2014 at 12:24pm.

There is no question that the use of LLCs in association with the acquisition and management of real estate have become increasingly popular, and for good reason.  After all, who doesn’t like having their liability exposure limited when entering into a business venture.  While no question exists regarding the importance of using LLCs, questions do exist as to which LLCs should be used.  Specifically, in which state or states should a person create their LLCs in order to obtain the best liability protections (ie: Texas, Delaware, Nevada, California, etc.)?  While the complete answer to this question is outside the scope of this article, this article will highlight several important factors to be considered. 

Generally, the best states to form a LLC will be those states that provide the following protections to a LLC’s members/managers, namely: 1) States that make a charging order the creditor’s exclusive remedy, 2) States that make the charging order remedy lien only, 3) States that do not allow for direct actions, 4) States that make assignees of the LLC automatically bound to the operating agreement by law and 5) States that have limited annual administrative requirements and fees.  While other factors need to be considered when forming a LLC, the members/managers of LLCs formed in Texas are generally afforded many of the above referenced protections.  As a result, anyone looking get into real estate should consider forming a LLC to help limit their liability and should consider utilizing a Texas LLC as well.         

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