Structural issues
Fueled by a flexible ownership structure and favorable tax treatment, limited liability companies are proliferating in
More than 57,000 limited liability companies, or LLCS, were started last year. And thanks to a recent state budget change, midstate attorneys believe the LLC may become even more popular.
At the start of 2016,
The capital stock tax was the biggest strikeagainst LLCs, said
But now that the tax is gone, the LLC structure has broader appeal, especially in real estate, she said. Some LPs are even converting to LLCs.
"It is preferred by developers and lenders," said Hoffer, who works with clients pursuing real estate deals al I over the midstate. Lenders like developers to use separate LLCs for every project because it isolates liability problems at one property from impacting the business owner's other properties.
Investors, meanwhile, prefer LLCs fortax purposes. A partnership's net income or losses flow through to the personal tax returns of die individual members. The LLC structure also places no limits on the number of members or the types of members.
"It's easy to do business," said
Creating separate entities for every project can be tough to manage, but it helps spread out the risk, and the cost of filing newentities is fairly minimal, said
Problem for local government
While business owners are drawn to the ease of filing and the silent investments made possible through LLCs, they can create headaches for local governments. The biggest problem is tracking down LLC members to collect delinquent taxes or address property maintenance issues.
LLC records filed with the state show addresses listed at the time of the filing. But the address may be out of date by the time local officials need to contact the owner. Some investors use vacant lots as company addresses, while others may register an existing property' they own, a home address of a member or the address of a registered agent, like a law firm.
It can be hard to find an LLCs individual members as LLCs are not required to list names.
"You go to the
In some
"It's a problem that has evolved," Patton said. "It's gotten progressively worse. No one is holding them accountable."
Slumlords often surface when codes enforcement actions choke off their rental income, Patton said. But when the property is already vacant, it's easier for the owner to shirk local responsibilities.
"People start LLCs to protect their assets, but where is the protection for the city?" Patton asked.
Patton and his team routinely try to track down the owners of vacant homes, who often purchase and quickly resell tax-delinquent properties, making it hard to find and pursue the right absentee landlord.
Many are out-of-state buyers, or even speculators based outside the
Demolition is the only way to stop the property' trading, he said. And the city has been demolishing dozens of condemned properties each year.
But while demolition can solve a problem for one property, it often means very little for the tax base. Razed building lots often sits in the middle of a block. And investors keen on redeveloping neighborhoods don't usually have interest in rebuilding single properties, he said. They would prefer multiple linked properties oían entire block.
There are about 400 condemned properties on the city's demolition list. That is an improvement from the year 2000, Patton said, but more resources are needed.
The same lack of resources afflicts many communities, especially cities. However, some counties have been considering new fees on mortgage and deed filings to generate new money for blight remediation efforts.
More info
More money isn't the only answer, however.
Patton plans to push for state legislation requiring LLCs to provide more information on their business registration.
He expects heavy opposition from lobbyists.
Hartzler, who has redeveloped many properties in
But he also doesn't think much would change if LLCs were required to protide more information.
"It does make it more challenging," he said, "but I blame it more on the people."
Corporate structure is not the only contributor to problem properties, he said: "If they changed the LLC rules, people don't suddenly become responsible."
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