R. Shawn McBride recently spoke about things to look out for when dealing with Series LLC.
Hey, folks. Shawn here. This message is really specially targeted to people in the real estate investment world, although the message is applicable to all over types of businesses. So we’re seeing something out there that’s getting very popular in the real estate world, and it’s called the series LLC. And there are some people out there saying you should be using this all the time. It is the answer. And people are also using it in other contexts as well.
For those of you that aren’t familiar with the series LLC, it essentially provides you where you have one master LLC, and then within that LLC, you have different silos of information that hold assets and liabilities. It’s great in theory. One major problem. Each state law handles these series very differently, so we don’t have uniform treatment across the country. So a series LLC in Texas is different than a series LLC in Delaware, which becomes a problem when you’re signing and executing documents, or you’re doing transactions across state lines.
But there’s a bigger gotcha out there, and that’s this: The bankruptcy courts haven’t dealt with series LLCs. The bankruptcy code has not been updated in a long time. Series LLCs are a relatively new innovation, and we don’t have guidance out there on what a bankruptcy court would do if a series LLC filed for bankruptcy. The bankruptcy court might respect the series, in which case each series would have separate assets and liabilities. In the event of a doomsday scenario, the other series would be fine. But a bankruptcy court might treat all the series as being the same. So we have a real issue out there, we don’t know what to do.
The best advice for people is to avoid these things. That’s what all the big players are doing. The big players are trying to stay out of series LLCs because nobody’s taking the lead on this, and it’s a real problem. But for some adventuresome people, you could try these. Certainly having a series LLC may not be worse than having a regular LLC, but there’s a lot of risks involved. So you want to understand the risk you’re taking. That’s why you want to work with a competent advisor. Don’t just listen to everybody who’s got something to sell. You really want to work with somebody, a good attorney, that has your best interest at heart.
You know, there’s a lot of people out there, we do these types of things for our clients, there are many other attorneys out there, too. Find somebody you like and trust that they can work with you, and is going to help lead you through this process of getting these series set up correctly. And see how you can get this done in a way that’s beneficial to you, and that you understand the risks.
Now, if these types of issues are resonating with you, check out the McBride for Business blog. We have a lot of great contacts there, the McBride Attorneys blog also has content for you. Subscribe to the McBride for Business YouTube channel, and the R Shawn McBride public page. We’re bringing lots of videos and contents to you. So look for those resources out there, and make sure you check out the business evaluation checklist on McBride for Business. R Shawn McBride, I’ve here for you. Let me know what issues you’re having and how I can help you. And we’ll talk soon.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Patti Adair.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.
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