The prevailing guru advice is to have one LLC for each piece of property.  Maybe that is the ideal for asset protection, but it generally doesn’t work.

Each LLC requires work to maintain its asset protection shield.  An LLC has the same corporate shield or limited liability protection that a corporation has, so it requires the same “formalities” maintenance that a corporation does. 

If you don’t follow the formalities of a corporation, then the argument in court (when you get sued) will be that the LLC is just your alter ego, and the court should set aside the corporate shield.  The vast majority of small businesses (real estate investors) lose their corporate shield protection when they are actually sued.

With a larger number of LLCs, the formalities become overwhelming, and nothing gets done.  My contention is you can’t effectively maintain more than a few LLCs or corporations. 

Maybe 3-6 LLCs is about max for most people to take care of effectively.  If you have ten or twenty properties, you will need to logically divide up the properties. 

The division will usually be done based on risk and asset value (equity in the property).  I go through the different considerations in my YouTube video.

The problem is, the attorneys and even the internet sites will egg you on to get as many LLCs as possible.  They are getting paid on a per LLC basis, so of course they want to give you (sell you) twenty LLCs. 

Don’t let them push you overboard.  Be conservative.  Even with only a couple LLCs, you have more LLCs protecting you than most people have. 

It should be noted that the formalities considerations only apply to the corporate shield protection. The corporate shield protects you and your personal assets from problems that arise in the LLC itself.

The charging order protection of an LLC is not connected to the formalities and “maintenance” of the LLC.  The charging order protection is always there.  There isn’t an “alter ego” argument to set aside the charging order protection like there is to set aside the limited liability or corporate shield.

To your success,

Lee Phillips

P.S. You may have noticed that we changed the thumbnail picture format on our YouTube videos. What do you think? Do you like the blue with the topic name bigger, or do you like our old format with the topic in a yellow banner along the bottom better? Let us know!