As a practicing real estate attorney with more than 40 years of experience in Massachusetts real estate transactions, I have pretty much seen all permutations and combinations of investment entities. When I first started practicing, limited partnerships were in vogue. That entity became further refined when people started creating corporations to be general partners. Limited Partnerships, frankly, had limitations. There was difficulty allocating cash flow among the participants; there were worries that any participation by a limited partner might make that person subject to entity liability. Limited Partnerships are still in use in special situations. These generally involve large, large transactions in commercial contexts.

Through the years, many people have embraced the use of Nominee, or Dummy, Trusts. These entities have the basic advantage of anonymity, and not much else. Recently, most tax accountants are taking the position that the Nominee Trust must file an informational tax return and thereunder “pass-through” the income and depreciation to the underlying beneficiaries. At one point, this second expensive step was not required. The worst part about the Nominee Trust, from my point of view, is that there is no real certainty that the underlying beneficiaries would be insulated from liability for obligations of the Nominee Trust. I now use Nominee Trusts in only situations where the property is residential and liability and umbrella insurance coverage would appear adequate for normal risks.

This brings us to my “Entity of Choice”, the Limited Liability Company (the “LLC“). Until relatively recently, Massachusetts, in its typical fashion, refused to join the other 49 states in permitting Single MemberLLC’s. Fortunately, those days are over, and the Single Member LLC is permitted. For your information, before the change, we needed to enlist a family member or close friend to become a minuscule Member to comply with the statute.

Now that Single Member LLC’s are permitted, there is no reason to use any other entity (other than an owner being “penny-wise and pound foolish” regarding the cost. In Massachusetts, there is a $500 filing fee for the LLC. There is an additional $500 Annual Fee after filing. Be advised, that there is a way to have “serial” LLC’s to avoid some of these fees, but that will be the subject of a future post.

So, for rather short money, a person who owns investment real estate in Massachusetts can operate like a sole proprietorship (some caveats here, see below) and have all the insulation aspects of a corporation. Moreover, if desired, an LLC Operating Agreement can be precisely tailored to admit “partner” Members and give them unique benefits. The Massachusetts LLC has one, or more, Managers (really a combination chief executive officer and sole board of directors member) and any number of Members (think of shareholders). The Certificate of Organization for the LLC generally provides the Manager with plenipotentiary powers, including the power to deal with real estate. The only thing the Manager has to remember at all times is to sign all leases and other contracts as “John Doe, Manager of the LLC”

At Topkins & Bevans, the law firmof which I am the founding partner, we work with Massachusetts LLC’s virtually every day. Call, or email,  me with any  Massachusetts LLCquestions or concerns, and we will gladly address them for you. No charge for any of this until, we both agree there will be. Just part of being a good ActiveRain citizen.