Reasons to Use Single Member LLCs
Very often, I recommend to clients that they form single member limited liability companies for purposes of entering into specific transactions, such as personal services, or acquiring and holding specific assets, including real property or investments in or loans to corporations, LLCs or other entities. The filing fee for forming an LLC in Ohio is only $99. In addition, a single member LLC is a disregarded entity for income tax purposes, so it will not result in any significant additional tax preparation expenses. Forming an LLC with a separate bank account is also often helpful for accounting and record keeping purposes. Accordingly, there is little downside to holding assets through single member LLCs and many advantages, such as those discussed below.
It is always a good idea to put real estate into a separate LLC, rather than take title personally or commingle it with other assets. The LLC will provide limited liability in the event of a large contractual or tort claim and allow more easily for separate financing and eventual sale or other disposition. For example, I recently had a client who used a newly-formed single member LLC to enter into a long-term sales representative agreement, which protected him from personal liability and separated the transaction from his other businesses. Similarly, I had another client who formed an LLC for purposes of making a specific large mortgage loan. Another advantage is that a judgment lien against you personally will not become a lien on any real estate or other assets owned in the name of your LLC, and your creditors will only be able to obtain a charging order against your membership interest in the LLC, which may be of little benefit to them. The LLC will also more easily facilitate transfers of ownership to family members, partners or other parties for estate planning or business purposes, while avoiding the recording of deeds or the need to publicly disclose any information or involve or give notice to third parties. The LLC is considered a separate legal person, which may be an effective way to avoid the application of certain laws or contractual provisions to both you and the LLC. For example, often transfers of interests in LLCs do not trigger transfer restrictions in organizational documents, leases or other contractual agreements. If you want to own equity and debt, or different classes of equity, in the same entity, it may be a good idea to do so through separate LLCs.
If you are interested in forming a single member LLC or a multi-member LLC, please do not hesitate to contact Sugar Law LLC.
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