Will even more people reinvest further away from California ?
No matter where you invest , it is important to take title to real estate in the name of a limited liability company ( or LLC ). As I wrote in my book
“ Loopholes of Real Estate ” there are too many legal loopholes allowing tenants and others to sue property owners . You can close that loophole of unlimited personal liability by holding real estate title ( s ) in one or more LLCs .
We always recommend taking title in an LLC , or in some cases , a limited partnership ( LP ). But the two main benefits of forming such entities , limited liability and privacy , are under attack by certain governments .
The attacks come under the nobility of expanding virtue and punishing evil . Who can argue that employees shouldn ’ t be paid what they are owed ? Of course they should . But this must be balanced so that employers want to hire workers .
Image by Ronile from Pixabay
California and New York now hold corporate owners responsible for wage and hour law violations . In California , corporate officers and managers can now be held personally liable for civil penalties resulting from minimum wage violations . Personal liability gets your attention . Either the company follows the rules or , with personal liability hanging over your head , you quit .
New York has gone even further . And in further we mean it has upset the balance between productive employment and limited liability protection . The top ten owners of an LLC can now be held personally responsible for violating New York ’ s wage and hour laws .
Consider the following example : You invest $ 10,000 into an LLC doing business in New York . In exchange , you receive a 1 % interest in the LLC . Nine other investors hold the remaining 99 % and three of them conduct the LLC ’ s business operations . You are a passive investor with no management control or authority . You like it that way . You invested into a limited liability company
New York ’ s law totally upends the concept of
limited liability . Attorneys will be counseling clients to think long and hard about doing business in New York . Mind you , all this disruption is in the name of protecting workers .
because your liability is limited to the $ 10,000 you invested , and nothing more .
But New York has now changed the rules . If the three managers don ’ t pay , for example , $ 100,000 in wages , you are now on the hook for the payment . Even though you only own 1 % of the LLC and had no management authority you are now ‘ jointly and severally ’ liable for the money . This means that if the other nine owners flee , or are bankrupt , you now owe the entire wage claim amount . What if people turn in their shares and all of a sudden , without your knowledge , you are a top ten owner ? You are responsible for the whole claim .
New York ’ s law totally upends the concept
of limited liability . Attorneys will be counseling clients to think long and hard about doing business in New York . Mind you , all this disruption is in the name of protecting workers .
The District of Columbia is also demanding more from LLCs . Their government , with the stated virtuous goal to “ expose bad landlord ( s ) hiding behind an LLC ”, now wants ownership information on all LLCs ( whether for real estate or business ) formed in D . C . or doing business in the District .
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