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This is the final part of our series on Entity Structuring Questions and Answers.
QUESTION: "A client came to me and asked why he did not get any stocks from an LLC. I told him that LLC does not issue stocks. He told me that he once went to an attorney to set up a LLC. He keeps insisting that the attorney told him he would have such and such amount of stocks in that LLC. Am I missing something?"
ANSWER: You are missing what is commonly called "Units of Membership","Units of Ownership", or "Membership Certificates". They look like shares of corporate stock and result in basically the same as shares of corporate stock. I have made them in the past for a client with my PC.
This is part 3 of our series on Entity Structuring Questions and Answers.
QUESTION: I have a rental property in Colorado and have created a Colorado LLC to hold it. However, I bought the property under my own name and have a small mortgage under my name. The mortgage company won't let me transfer title to the home to the LLC with the mortgage in my name. I could pay off the mortgage, but that would leave me more cash poor than I care to be. A friend suggested that I lease the property to my LLC (it's a single member) and that would give me the legal umbrella of the LLC and still keep the mortgage company happy. Anybody ever done this or heard of it being done? Thanks.
ANSWER: Usually, the mortgage company will not let you transfer the title without triggering the due on sale clause. I have usually just transferred without getting them involved and as long as the mortgage is being paid, then you are fine. Going on almost 10 years of my properties being in an LLC still with a mortgage in my name. Leasing the property to your LLC is good in dealing with tenants but no protection in dealing with creditors as it will still show your name on title.
This is the second of a four part series of Questions and Answers related to entity structuring.
QUESTION: In 2005 I entered into a partnership with my brother and a couple of friends. We purchased a single family house to rent out. We (over)paid around $127,000 for the house. The property is titled in my brother's name, as is the mortgage on the property, with a current balance of $102,000. A few years back, as the partnership began to lose money, I bought out two of the partners. I now own about an 80% interest in the partnership.
I would like to buy out my brother's interest so that I can eventually either sell the house utilizing a 1031 exchange or re-finance the house at current low interest rates (I can qualify for a conventional mortgage). I don't want to sell the house out of the partnership and get stuck paying depreciation recapture. The house will sell for $130k - $135k.
In order to do a 1031 exchange or re-finance the house, I need it to be deeded in my name. Can I buy my brother's share of the partnership and then have the partnership deed the house over to me without triggering any tax consequences? Will the partnership (a general partnership, we never filed formation documents with the secretary of state) cease to exist if I buy out my brother's interest? Will there be some seasoning period required, or should I be able to re-fi right away if I acquire 100% of the partnership?
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