Almost all of the TIC Sponsors with whom Sabre works choose to Form LLC’s in Delaware.  The Delaware entities for a given TIC property are then Qualified to Do Business in the state jurisdiction where the property resides.  What’s the motivation for this?  Why not cut out the middle man and just Form the entities in the state of the property in the first place?

One reason often cited is that Delaware lets one Form entities anonymously.  This is something unique to Delaware, but what makes this so valuable?  Why would someone want anonymity anyway?

Apart from the usual unsavory reasons why one might desire anonymity, the biggest benefit to the anonymity one enjoys with a Delaware LLC is that it cuts out administrative and financial hassle.  Because Sponsors may Form anonymously if they wish, they are furthermore not obligated to Amend their entity’s filings.  With many other states, whenever there is a change in manager or member information (such as mailing address), the LLC must be Amended with the state to reflect this change.  This means more paperwork and more fees.  When dealing with hosts of investors altogether, such minor annoyances add up.  Forming in Delaware, however, provides one with genuine anonymity, the crowning perk of which is the avoidance of so much nasty bureaucratic red tape.
 
Also, when you consider the role LLC’s play in TIC investments, it becomes apparent how anonymity provides a Sponsor flexibility as they work to bring a TIC to market.  When a Sponsor puts together a TIC Investment, they are accomplishing a masterpiece of orchestration: they are gathering into a single investment up to 35 distinct investors, most of whom are working within their own 1031-exchange timeframes.  Things get complicated. 

So, it is beneficial to Sponsors to be able to create many LLC’s up front, before they even have investors who need them.  This way, the Single Purpose Entities are primed and ready as means for the investors to take hold of their interests in the TIC property.  But if to Form an LLC the Sponsor has to have all member information on hand, (i.e., the investor’s name and address) then this option just isn’t possible.

So, Forming entities anonymously helps (1) to sidestep bothersome forms and fees, and (2) affords Sponsors a way of creating entities up front and then assigning them to investors after the fact, which in turn works to make TIC investments more viable.

Tags: Delaware, Formation, LLC, SPE, TIC Industry

This entry was posted on Wednesday, December 17th, 2008 at 5:58 am and is filed under LLC Information, TIC Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.