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In theory an LLC (Limited Liability Company) offers a level of protection for the owner if being sued.

I want to buy houses and rent them out, I have some fear of being sued by tenants in the future (no particular concern, but I live in the USA (United Sue of All).

What if any, greater protection does having an LLC being the owner of the houses have?

I would own the LLC, the LLC would own the houses and collect the rent.

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An LLC is a legally distinct entity from your person. Basically, if your LLC is sued, and you lose, you can lose only what you put into your LLC. Your personal assets are untouched.

A very sophisticated plaintiff may try to get around this suing both your LLC and you personally. (I've done this myself.) Even so, if you are careful to keep the business of your LLC separate from your personal business (no commingling of assets, no use of your LLC to pay your bills, but only a salary), then the law will often absolve you of personal liability for the "actions" of your LLC.

The reason I warn against "commingling" is because if you do this, you can lose the protection of the LLC as a separate entity, and become personally liable for what the LLC does. This is known as "piercing the corporate veil."

If you have home rental operations in more than one state, you may want to establish LLC's for each state. That's because some states are more tenant- and other states are more landlord- friendly than others, meaning that you may want to defend yourself differently in one state versus another.

  • The technical term for (successfully) suing the person for the actions of the company is "piercing the corporate veil." – cpast May 29 '15 at 3:53
  • @cpast: Added a new paragraph address your point. – Libra May 29 '15 at 15:08
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Note, further, that it's not only a question of whether or not to use an LLC, but also where to form that LLC. For example, Delaware is a very popular home for LLCs that are owned and operated elsewhere due to relatively unique protections, including exceptional confidentiality provisions.

Savvy operators often layer LLCs to add additional protections, typically by having the initial owner invest through a "holding company" which in turn is the only legal owner of one or more "operating companies."

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This response reflects no knowledge of Pennsylvania law. The general rule in most states is that a creditor of an LLC may not pursue the members of the LLC directly. In other words, provided that you follow appropriate corporate formalities, the capitalization of the LLC is the limit of liability. The same would be true of a corporation, although LLCs have the additional benefit of being creatures of contract that do not necessarily require all of the formalities of the laws governing corporations. In the situation you describe, I would be primarily concerned about maintaining corporate formalities. If you do so, the corporate form has significant benefit; if you don't, it is a minor roadblock.

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