Team Setups - Orgaization LLC Operating Agreement (Page 1 of 2)

Mike,

You have many good points and look like you are on a good track.

I have talked about this with several team members as well as car owners.

The two cars we race are titled.  On is titled to me.  There is some liability there so a corporate structure would help remove individual liability.

One method suggest to me was have a parent corp, say Idiots Racing Inc.  Then make each car an LLP like #666 Idiots Racing Inc.

Like you said a corporate structure can have a bank account and own the cars as well.  Yes, this may seem overly complicated but there is money moving around and liability involved.

Liability waivers are a good idea.

The separate bank account is a good idea too.  I have received several payments via PayPal over the previous 4 races.  With 5 or 6+ potential events for 2010.  That money moving around, especially electronically, can easily exceed $10k which might raise some eyebrows with the IRS.  I am not saying it is going to happen but they probably see it as income.

Initially, I did form get a DBA which just established a sole proprietorship in Texas and opened a separate bank account.  I never did anything with it though and shut down the account after the first race.

I think you have some good ideas and it may be a good idea for other teams to consider.  It all seems pointless unless someone gets hurt and an angry spouse comes after the car owner.

i don't see how this could possibly make things more simple.

attorney and filing fees should be counted against the $500

I understand where your concerns are, but maybe you're overthinking it.

The way we do it, each guy contributes $100 per month and an "equal" share of time working on the build (we don't count exactly, just keep a mental note on who does/doesn't show up).  Our money is kept in a small safe in the garage, and we have a very basic spreadsheet which keeps track of where the money came from and where it goes.  Simple as that.  When the race is over, we will vote on whether to distribute back any spare $$ (if any) or whether to escrow it for future races.

Before we started we made an agreement that any member of our team who drops out for any reason is NOT entitled to his share of the money back.

IMO, registering the car is totally pointless.  First of all, it's an unnecessary expense.  Secondly, the car is VERY likely to be inoperative by the end of the race; then you're boned.   Third, simple trailers are cheap and if you're going to keep racing, you'll eventually need one anyway.  Just buck up and buy one.  Plus, you'll be amazed how useful it is for hauling furniture/firewood/etc.

We have the opposite problem as you regarding ownership:  our car has no title, and we've all decided that no one has any desire to own the car!  So, someone's gonna get screwed out of a parking spot eventually, or the car will be sold/crushed, unless we want to race it again...who knows?

--Bob

I understand where you're coming from, Mike. I had sort of the same idea about a year ago when my team started off on this venture. Most of what you are talking about is quite sensible and displays well-organized thought; it is therefore antithetical to the very nature of Lemons.

The big downside of a corporate entity (let's say it's an LLC) owning all the assets is that there's a lot of administrative headache to go along with having a corporate entity. Taxes have to be filed, corporate records updated, etc. Insurance for a corporation with multiple drivers is often more expensive than it would be if you insured the car on your personal policy, and even then who's going to insure the car when the one thing that's almost certain is that it is, to some extent, intended to be wrecked in the course of its normal use?

The main draw of "incorporating" a Lemons team is to shield the individuals from liability, but that isn't going to work either unless none of the individuals work on the car and you have all the work sourced out. Which is, of course, effectively impossible in an event that limits the value of your crapcan to $500 or less. The scenario you envision is something like this: Driver/Member X crashes the car in testing/race and is seriously injured/killed as a result of the crash. Driver X (and/or his estate) is looking to sue everybody and anybody to recover his medical costs/funeral costs, personal injury/death, etc. Any plaintiff's lawyer is going to sue not only Your Lemons Car Shell Org., LLC, but also every individual member in their individual capacity who did any work on that car or who touched any part of it. After all, YLCSO, LLC has very few assets and it can't pay off any judgment, whereas each of you individually has a homeowner's policy that will probably pay off something. And then every member is going to get grilled about what they did, and since (ostensibly) none or few of your members are professional race car engineers or mechanics, you will be charged (civilly) with negligence and/or gross negligence for your failure to produce a safe race car. And the fact that you knew that you were borderline incompetent (the plaintiff's lawyer's words, not mine) and formed an LLC for that very reason will be used as evidence against you in that trial.

In other words, your shield will be turned on edge and used against you. Your only solace is that Jay and his Lemons crew will be your co-defendants, so you'll at least be able to spend some quality time with Our Mighty Leader as you sit through endless depositions.

IOW, in my cold, dark heart, it makes less sense to deal with all the administrative burdens for little to no effect.

What it seems like tends to happen with most Lemons teams is that a group of guys gets together to do the race, and then after that race most of the original group have had their fill and flake out and are pretty much content to be done with it. The survivors assume "ownership" of the cars that are left over and find new dummies to join them for the next race. Most of the time, each team becomes over a couple of races an organization with one or maybe 2 leaders  who own most of the car(s) and most of the stuff and who contribute most of the time/effort/money/vision/dedication/insanity to keep it going.

Bear in mind that the more "professional" you make an organization, the higher a standard to which it is held. If it's just a bunch of idiots wrenching on a car in a garage in their spare time, the standard is pretty low. If you get it all put together and packaged nicely, a jury of your peers is going to expect more from you. YMMV. Good luck.

well said, Mulry.

the lesson is to not have people on your team who (or whose families) will sue you if they get hurt/kilt.  the bottom line is that we all understand and accept the risks inherent in what we're doing; by getting in the car and pulling out on track, we assume those risks.

it will be a sad day (and the beginning of the end) for Lemons when worrying about which team member is going to sue the rest is a major consideration.  let's not let it come to that.

Mulry has excellent points

while an LLC is an excellent idea..... in my limited experience at Lemons & after talking to gristly old veterans it appears that a true "team" concept where everyone is precisely equals never-EVER works out....  Its a division of labor thing.... and the two largest "needs" for a Lemons racer is $$$$ and labor (sweat equity)....  I've found that its somewhat easy to find one or the other...but its RARE to have someone invested with both (other than yourself)..... everyone loves the concept of a Lemons racer and says they want to do it-help out...but when it becomes time to WORK on the car...or buy stuff....very few actually step up....  its the nature of the beast......if you have a core team of say 4 guys who do step up with labor and $$$$ you are VERY LUCKY...keep them!!

So I decided to move forward with the team as MY car...so I decide who drives, who pays and for what.....  which typically consists of me paying for everything and getting some $$$ back from drivers after races.... 

in the end this is the best solution.....any race team needs a Team OWNER-manager to call the shots.....

This is gonna sound like a question from someone who doesn't live in the US, but here goes: if you set up a LLC for the expressed purpose of limiting liability, i.e. not as a profit-making enterprise, won't a judge/jury see through it and "pierce the corporate veil"?....Up here you have to demonstrate a reasonable expectation that the business is a going concern or you're still liable......or maybe just race with friends and nice people...

I am going to keep my mouth shut! Corp,LLC,contracts!!! what ever happened to a drunk bet written on the back of a bar tab receipt!!!!!!

From the Corporate offices of Pendejo Corp doing business as Pendejo South LLC

Humbly the MAXIMO Pendejo

Lemons or life?

Paul, what on Earth makes you think that I'm going to stop at the car?

Amen!

This was my "business" model.  I wanted to go, I wanted to race, out of the pool of 15 people who initially said they would go, it distilled down to 4 plus me that were commited in the end.  We had a great time, and they are all hooked.  Maybe it will be easier to get money out of them this time, but if not, I still want to race, and we will again make it happen.

I bet our executors won't have happy thoughts about racing, Lemons, and our teams if we get killed. Now if I get a kilt, my wife might die laughing.

Lets start with just Lemons, and hope for the best with the rest. ;-)