When To Open A Bank Account For Your LLC?

Summary

This video explores the necessity of bank accounts for Limited Liability Companies (LLCs). It clarifies misconceptions about the need for a bank account to legitimize a business and emphasizes that the requirement depends on the business type and operational needs. The speaker uses real estate examples to illustrate scenarios where bank accounts are essential, such as when self-managing properties, and where they are optional, like when using a property management company. The video also addresses the legal concept of 'piercing the corporate veil' and refutes the notion that lacking a bank account could lead to this. It concludes with advice on maintaining good bookkeeping practices for LLCs, regardless of bank account setup.

Takeaways

• 🏦 The necessity of a bank account for an LLC depends on the type of business and its operational needs rather than being a requirement for legitimacy.
• 📚 It's a misconception that an LLC must have a bank account to be considered a legitimate business entity.
• 🤔 The decision to set up a bank account for an LLC should be based on whether it's needed to conduct the business's necessary activities.
• 🏠 In the context of real estate, if an LLC owns a rental property and a property management company handles the funds, a separate bank account for the LLC may not be necessary.
• 📈 For real estate investment, a Wyoming holding LLC is often used to own multiple special-purpose LLCs, each potentially owning a property.
• 🧐 It's important to maintain good bookkeeping and records to track income and expenses for each property within a holding LLC structure.
• 🚫 Tenants should never pay rent directly to a holding LLC, as this entity should not be conducting business in the state where the property is located.
• 💼 If an LLC is actively managing properties, it's recommended to create a separate bank account for each LLC to handle tenant payments.
• 🛠️ Creating a property management entity can help centralize tenant payments and reduce the need for multiple LLC bank accounts.
• 📊 For active businesses like a management service organization, a bank account is essential to receive payments for services provided.
• 💡 The decision to set up bank accounts should consider the business's passive or active nature and the potential for compartmentalizing income and expenses.

Q & A

Is it mandatory for an LLC to have a bank account?

No, it is not mandatory for an LLC to have a bank account. The necessity depends on the type of business and whether a bank account is needed to conduct the business activities.

What is the purpose of a Wyoming holding LLC in the context of the script?

In the script, a Wyoming holding LLC is used to own multiple real estate special-purpose LLCs. It serves as an umbrella entity to manage and hold the assets of the individual LLCs.

Why might an LLC not need a bank account for collecting rents?

An LLC might not need a bank account for collecting rents if a property management company is handling the collection and remittance of funds directly to the owner or holding company.

What is the significance of having a property management company (PM) in the scenario described?

The significance of having a PM is that it allows the property owner, who may not be managing the properties themselves, to have the rents collected and remitted to them or their holding company without needing individual bank accounts for each LLC.

Why would someone choose not to create bank accounts for individual LLCs owning rental properties?

Some clients choose not to create bank accounts for individual LLCs because the property manager collects the rents and sends a single wire with an owner's statement to the holding company, simplifying the process and reducing the need for multiple accounts.

What are the benefits of having a Wyoming holding LLC?

The benefits of having a Wyoming holding LLC include centralized management of assets, potential tax advantages, and the ability to segregate income and expenses for each property while maintaining a single bank account for the holding company.

What is the importance of maintaining good books and records when using a holding company structure?

Maintaining good books and records is crucial for tracking the income, expenses, capital expenditures, and other financial details of each property. It also helps in demonstrating the legitimacy and separateness of each LLC in case of legal challenges.

Can tenants pay directly to the Wyoming holding LLC?

No, tenants should never pay the Wyoming holding LLC directly. The holding LLC does not conduct business in the state where the property is located and should not be involved in rent collection.

What is the recommended approach if an LLC owner is self-managing properties within their state of residence?

If an LLC owner is self-managing properties within their state of residence, it is recommended to create a separate bank account for each LLC to handle the collection of rents and management of property-related finances.

How can an LLC owner minimize the number of bank accounts needed while self-managing properties?

An LLC owner can minimize the number of bank accounts by setting up a property management entity, which can be an LLC or a disregarded entity, to handle the collection of rents and interaction with tenants on behalf of the individual property LLCs.

What is the role of a Management Service Organization (MSO) in the context of the script?

In the script, an MSO is set up to manage various enterprises such as medical practices. It is an active business that requires a bank account to receive payments for the management services it provides.

What is the general rule for determining if an LLC needs a bank account for its business activities?

The general rule is that if the LLC is engaged in an active business that receives funds for the services it provides, it will need a bank account. For passive activities, an analysis can be done to determine if a bank account is necessary or if there's an alternative structure in place.