LLCs Protect Real Estate Investors

The New York Times of April 30, 2018, had an article about Limited Liability Companies, some of which own real estate, and take advantage of the anonymity and limited liability features offered by the Limited Liability Company Acts existing in most states.  These protections are not available to most small real estate investors.  Most banks will not finance the purchase of a two-flat or a three-flat by an LLC.  Only the larger investors such as Sean Hannity, who invested in troubled properties through a large LLC, can take advantage of this.

The Times missed another issue, one that affects corporations and LLCs.  The proliferation of corporate and LLC affiliates, subsidiaries, and parents can work a fraud on the unsuspecting.  One LLC will have two members, each an LLC, each of those LLCs will have members, often LLCs or corporations, and so on, until simply mapping the corporate or LLC genealogy becomes a challenge.  Someone contracts with an entity with a big, well-known name suddenly discovers later that it contracted with an affiliate or subsidiary or member that was thinly capitalized, cannot stand behind its commitments, and abandons whatever project was decided on without having to account.

Existing remedies to disregard the entity sometimes sweep too broadly and sometimes too narrowly.  It is a subject ripe for corrective legislation.

If you have a shareholder dispute or a commercial real estate litigation dispute, contact Thomas E. Patterson of Patterson Law Firm at (312) 223-1699 or tpatterson@pattersonlawfirm.com.

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