Section 347.057 of the Missouri Limited Liability Company Act states “A person who is a member, manager, or both, of a limited liability company is not liable, solely by reason of being a member or manager, or both, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise or for the acts or omissions of any other member, manager, agent or employee of the limited liability company.” So, like a corporation, LLC’s provide protection to the individuals, (or other LLC’s, or corporations) that own the LLC from personal liability for business conducted by the LLC. Without the ability to protect one’s personal assets from liability from business operations, many businesses wouldn’t exist nor would the products and services they provide. For example, would you be willing to buy stock in a company such as Ford, or Johnson and Johnson if you were going to be personally named in all the lawsuits brought against those companies? I doubt it.
Landlords, rehabbers, developers and speculators often own and operate their real estate inside of LLC’s for many reasons including for liability reasons, tax benefits as well as to sometimes conceal or protect the identity of the individuals or companies involved. All of these things (including concealing the identity of the members of the LLC) are lawful purposes of the LLC and have legitimate purposes.
Proposed legislation could strip protection away from property owners in Missouri:
House Bill 864 (bill contents below), introduced by Representative Sheila Solon from District 031 (Jackson County) if passed, will allow and city, town, village, or county in Missouri “to enact an ordinance requiring that any limited liability company that owns and rents or leases real property, or owns unoccupied real property located within the city, town, village, or county to file with the city, town, village, or county clerk an affidavit listing the name and street address of at least one natural person who has management control and responsibility for the real property owned by the limited liability company and leased or rented to another entity or owned by the limited liability company and unoccupied.”
This bill effectively negates part of the protection provided LLC members under the Missouri Limited Liability Company Act by requiring LLC’s to identify a person to be responsible for the property owned by the LLC. On the surface that may seem reasonable as, after all, maybe the city just needs to know how to reach someone about the property owned by the LLC or perhaps the LLC is not maintaining the property and the city needs to know how to notify them. Well, these things are already covered in existing state law as LLC’s are required to have a registered agent, just like a corporation, so that if it becomes necessary to bring legal action against the LLC, or perhaps send them a notice, there is an agent that has been designated to accept service for the LLC. If LLC’s are already required to have a registered agent, why then do they want the affidavit with an individual’s name that is responsible for the property? Based upon what I have seen municipalities throughout St Louis county do over the past several years I would say the purpose of having this person identified is so that if the municipality has an issue with the property it can save the hassle and time of dealing with an LLC and come after an individual. If you are thinking that they could not hold this individual personally responsible for property not even owned by the individual, don’t kid yourself…I can give you plenty of examples where this has happened, and is happening now. Individuals named in summon’s, suits and even criminal actions when in fact, the subject property is owned by an LLC and the individual name in the suit or charged with the crime may not even be a member of the LLC.
Why should a property owner be required to hire a property manager?
If you own property in an LLC and you, nor any of the other members of the LLC, are willing to accept personal responsibility by being named on the affidavit, you may be forced to hire a property manager or other sucker that would be willing to put their personal information on the affidavit and accept personal responsibility for a property they don’t own. What if your LLC doesn’t even have any real people in it? It’s not uncommon to have other LLC’s or corporations, be a member of an LLC so then what do you do?
Owning Rental Property With a Self Directed IRA Could Be A Problem Too:
Today, it is very popular for people to invest in rental real estate using a self-directed IRA. Attorney’s and financial advisors often advise when doing this to form an LLC that your IRA will be the sole member of. So, when this bill passes and that LLC has to name an individual on the affidavit who are you going to list? You can’t list the “owner” of the LLC as it is your IRA and that is not a real person. No problem you say, you’ll just list yourself. Well, before you personally accept responsibly, and liability, for that property owned by your IRA-owned LLC, you may want to spend some time with your CPA and Attorney to see if that is going to cause you issues with the IRS as a result.
Let Your Voice Be heard;
If anything about this interests you, either because you think it’s a great idea or a lousy one, then let your voice be heard and contact your state representative and let them know how you feel. You can also contact the bills sponsor Representative Sheila Solon direct.