WE ARE IN THE PROCESS OF FORMING AN LLC FOR OUR MINERAL RIGHTS IN NORTH DAKOTA. IT IS DIVIDED INTO 3 - 25% SHARES AND 2- 12.5% SHARES--ALL FAMILY. IT IS BEING SET UP BY A LAWYER IN TEXAS WHERE MY BROTHER LIVES. IS IT NORMAL TO SIGN OVER OUR DEEDS FOR THIS?
The LLC can only have title if deeds are filed assigning title from individuals. The individuals become members of LLC. Management of LLC is determined by terms of LLC agreement. Which member(s) have authority to sign leases? Write checks? Are there any restrictions on sale or transfer of your 'shares', such as do other members have a right of first refusal if one member tries to sell to an unrelated party? That can be a problem if you now have to deal with a stranger. Is managing member going to work for free or be paid, and on what basis - monthly fee, hourly fee or percentage? The advantage is that you all manage you minerals jointly and there is strength in larger blocks of minerals. Also you can transfer partial or all ownership shares to your children without having to file in deed records. (You will still need to file federal gift tax return if value is over annual limits.) LLC will file tax return which will pass all income through to members to report on their tax returns. In Texas, royalty income is exempt from margin tax if received by limited partnership, but not if received by LLC once it gets to certain level. So mostly I see limited partnership with LLC as general partner. (This preserves individuals from personal liability.) What are tax rules in North Dakota? Will this be registered as a Texas or North Dakota LLC? If in Texas, you may or may not need to register as a foreign entity in North Dakota. Is the Texas attorney familiar with N. Dakota law? There are a lot of issues which you need to consider and fully understand. You should consult a N. Dakota attorney who is familiar with state law and taxes.
We will have the same company managing the LLC that managed it while it was still in the trust. They are familiar with the leases and the Royalties and are in charge of the North Dakota area for their company. It is with a Texas Lawyer because my sibling lives there, and found the Lawyer to set it up who specializes in that. Sibling is a Geologist who has worked in the oil business all his life. just questioning some items told to us--like signing over my deed. I am NOT comfortable with that.