Cabin LLC Think Sheet: The basic outline used in the formation of a Family Cabin Limited Liability Company.

Wally Shannon
Aug 31, 2018 · 6 min read

I promised a good friend I would share my basic outline of questions I use related to the formation of a Family Cabin Limited Liability Company.

Below is the “think sheet” I offer up to clients (or use myself as I meet with them) to get the ball rolling when we are looking at forming a Family Cabin Limited Liability Company.

Take it with a grain of salt … It is an accumulation of questions based on years of working to help folks form Cabin LLCs. I am sure it does not cover everything and note all cabin LLCs are unique to the individual family’s needs and wants.

Cheers and thank you.

Walter


Think Sheet for Cabin LLCs

Contact Name: __________________

Home Address: ____________________________

Cottage Name: ____________________________________________________________

Cottage Address: __________________________________________________________

Contact’s Telephone: ______________ Fax: ___________ E-mail: _____________

Cell Phone No. ___________ LLC Start Date: ___________

Who uses the Cottage: _______________________________________________________

LLC Members (full name, home address, business address, phone numbers, and social security no.):

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

OPERATING AGREEMENT THINK POINTS

The Operating Agreement is where the rules are established for management and use of the cottage.

1. Management

The family will need to choose between a “Member Managed” or a “Manager-Managed” method for controlling their company. The management method will depend on the size of the family and the number of members. This can be changed from one to the other if the group decides to switch from one to the other after operating for a period of years.

Member Managed

The smaller the family the easier it is to be a “Member Managed” LLC. Ultimately you want to keep things simple and add key points to the operating agreement which are important to each member with a provision that those key points require unanimous agreement.

Manager Managed

When there are more than three owners problems could arise when voting on issues. An alternative is to have the operating agreement permit members to appoint company “managers” and establish committees to oversee the day to day operation of the cottage.

The allocation of management powers can be determined by the members.

These are some typical types of cottage operation “managers”:

•Operations and Maintenance Manager

• Record-Keeping and Scheduling Manager

• Financial Manager

Managed by Managers? Yes No If Yes, Managers (if not member, add same info as for Members):

_______________________________________________________________

Statutory Agent for Service/Registered Agent (who will receive lawsuit papers) [full name, home address, business address]:

___________________________________________________________________

___________________________________________________________________

2. Important Decisions for All

These are operating issues which every member should vote on to have control of the outcome (Vote required?):

• Annual budget

• Capital improvements (above a threshold amount)

• guidelines for member voting to approve any sale or remodeling of the cottage

• Operating agreement amendments

• Amendments to the Articles of Organization of the Company

• Merging the company

• Dissolving the company

• Establishing a cottage use fee for members

• Select or replace company managers /protocol for changing managers of the LLC

• Mortgaging the cottage

• Renting the cottage (although some or all of this can be delegated via a meeting and voting on a resolution of the members)

• Changing the company to a different legal form

• Endowment contribution (funds held in an account for the purpose of the cottage)

• Approve construction or remodeling which alters the character of the cottage

• Land splits

• Increasing members portion of property insurance, property taxes, and standard maintenance expenses

• Selling the company

• Selling the cottage

• rules for scheduling, using, cleaning, securing and winterizing the cottage and outside area

• a guest log book to be signed by all users

• payment of “use fees” by those who use the cottage, based on days and extent of use

• annual assessment of members, based on percentages, for the capital costs of owning and maintaining the cottage

• procedures for selling an LLC interest of a family member who does not pay his or her share of assessments

• rules for transfers of LLC interests within the family

• protocol for maintaining communications in the family regarding the cottage

3. General Operating Agreement Provisions:

• Percentage ownership for each member?

• Use the family branch system for voting?

• Personal property covered? Identify?

• Managers (how chosen, who eligible, term of office, manager duties (ownership records, tax, minute book), filling a vacancy, reimbursement of expenses, maximum amount to spend without approval of all Members)

• vote required to take action

• vote required for sale, mortgage or dissolution

• vote required for additional capital contributions

• vote required to assess members for more than their share of taxes, insurance, and maintenance expenses

• vote required for capital improvements costing more than $______

• amount of initial capital contributed by each member and what it consists of (any deeds, bills of sale, or other documents identifying assets)

• how profits/losses will be shared

• Member loans to LLC allowed? (terms of loan)

• Dispute resolution — Private arbitration?

4. Buy-out clause, which includes provisions for how to determine fair value for the property

• Restrict transfer of membership interests (to descendants only — spouses & step-children only on approval)

• Permitted transfers (revocable trusts; descendants; trusts for descendants; back to the company)

• Transfers permitted on condition of approval

• Put option if a member wants out (how purchase price determined (assessment, appraisal, fixed), discount percentage, deposit, payment period, collateral for payment, purchase by company)

• Consequences if a member fails to pay share of expenses (interest on assessments, denial of use, how long in arrears before call option, how purchase price determined (assessment, appraisal, fixed), discount percentage, deposit, payment period, collateral for payment)

• Option to purchase real estate upon dissolution

• Protect property against the death of their partner by taking out life insurance on each member in the cottage? The policy names the remaining cottage owners as beneficiaries and affords them the money to buy out the descendants of the relative who died.

5. Scheduling basics

• Cottage schedule (prime season, off season, time-share vs. rooming house, priority among members, swapping, use charges, parental supervision)

• What are your family traditions, and what are the overall needs of your family?

• Determine schedule based on a system?

• How is time divided? Who may use the cottage? Rental time frames and rates? Holidays? Rotate?

• Guest policy (guest only allowed if owner there, owner responsible for guest actions)

• Renting the cottage (allowed?, when can you rent, who can rent, who will manage renters, lease required, rental management company, compensation to rental manager)

• IE: Annual meeting of members in December to set next year schedule?

• IDEAS: 1) cottage owners schedule time every other week; 2) they each get one week prime and one month non-prime; or 3) they adhere to a pay-as-you-go system, where the co-owner who uses the cottage more pays the other co-owner for the time they use.

• Reserve the cottage for six weeks each year for family gatherings and maintenance. Rotation method for the rest… families get first dibs on times one year then drop to last place the next year.

6. Assessments

• How will money be raised each year to keep up the cottage–to pay the utilities, property taxes, fire insurance, repairs and maintenance, association dues, permit fees, etc.?

• Also, use of the cottage will not be equal within the family–some family members will use it more than others. How to account, and pay, for that difference in use?

• Members should agree to assume a portion of the fixed costs — taxes, insurance — and the variable costs — gas, heating, maintenance.

• “People day” formula? Every day a person in the LLC uses the property = people day. This includes guests and children. Each family/ branch gets charged their share of fixed costs and variable costs according to their percentage of “people days” used each year. Minimum amount of fixed costs paid regardless of use.

• Worker Bees. Those who provide the most maintenance help would get credit toward extra days in the cottage.

7. Housekeeping rules

• What food items get left behind? How neat should the cottage be? What is the decorating style? How much tolerance is there for the normal messes left by children?

• Décor. Circulate digital photos of any furniture they wanted to buy for preapproval.

8. Other Important Information:

Accountant (full name, accounting firm name, telephone number):

___________________________________________________________________

Who will apply for a TIN? _______________ Who will apply for state registration number? _________________ Who will prepare income tax return? __________ Who will prepare gift tax returns? _______________

Who has the deed needed to transfer the cottage to the LLC? _______ Lender approval required? _____ Value of cottage for gift tax purposes? _______ Any recent appraisals? Who will contact appraiser? ____________

Any title insurance? _______ Who will contact the homeowners insurance company re: cost of insurance and endorsement? ___________

The Grove Report

The Shannon Law Office Blog—www. shannon-law.com

Wally Shannon

Written by

Wally is an Estate and Trust Attorney from Wisconsin. He loves what he does, loves his family and friends. One of a million owners of the Green Bay Packers.

The Grove Report

The Shannon Law Office Blog—www. shannon-law.com

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