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Can You Have Multiple Businesses Under One LLC?
Last updated Sunday, April 7, 2024
Can You Have Multiple Businesses Under One LLC?
There
may come a time when you decide to expand your business into an additional area
of focus or take an online business to a storefront (or vice versa). These
shifting operations lead business owners to wonder if they can have multiple
businesses under one LLC. The short answer is, yes, you
can operate multiple businesses under one LLC.
However,
before you jump in, you have multiple options to consider. The route you choose
can impact you in several ways (including your liability and tax obligations),
so it’s critical to do your homework and weigh the pros and cons. Nevada Registered Agent Service™ highly recommends
consultation with an accountant and/or attorney about your situation so that
you get expert advice and direction on the legal and tax implications.
What
Options Do You Have for Owning and Operating Multiple Businesses?
Let’s
take a look at three popular ways to structure multiple businesses and explore
how each scenario works.
1.
Use One LLC to Run Both Businesses
One
common approach involves having one LLC (usually named for the original or
primary business) and then setting up a DBA (short for Doing Business As) or multiple DBAs for the new
venture(s).
- A client has an LLC for his
widget shop, called Widget World, LLC.
- That client now wants to branch
out and sell gizmos online.
- He might opt to keep both
business lines under his existing LLC but differentiate the new venture by
filing the DBA for Online Gizmos Company.
In
this scenario, the businesses can be run as though they are separate companies
with many advantages:
- Both companies have the ability
to accept checks made out to their specific name.
- The business owner enjoys
simplified business compliance requirements because there’s only one
business entity (and one EIN) to
maintain.
- Tax time remains relatively
straightforward. The business owner reports income from the LLC and any
DBAs that are part of it through a single tax filing under the main LLC.
- The business owner has personal
liability protection for both the original LLC and any DBAs filed for it.
Using
our hypothetical client as an example, the client’s personal assets will be
shielded (under most circumstances) if either his LLC or DBA business is sued
or cannot pay its business debts. Note, however, that the LLC and DBA are
considered one entity. Therefore, both business lines’ assets are at risk if
one or the other runs into legal or financial distress.
2.
Create Independent LLCs for Each Business
Many
business owners choose to form a new LLC for
each of their business ventures. In most states, there are no restrictions on
how many LLCs an entrepreneur may create.
Independent
LLCs isolate the risk for each individual business. So, if someone sues Widget
World, LLC., his online gizmos LLC’s assets will be
protected, and vice versa.
- It comes with additional
compliance fees and paperwork. Creating separate LLCs requires
filing Articles of Organization for each company,
maintaining separate operating agreements, and filing whatever ongoing
reports and fees are required for each LLC.
- Each LLC must also obtain its own
EIN.
- Each LLC must apply for and
maintain its own business licenses and permits.
- Each LLC must maintain its own
records and bank accounts.
3.
Create an LLC Holding Company with Individual LLCs Under It
Another
option for running multiple businesses is to create individual LLCs for each of
the businesses and then put them under one parent LLC that acts as a holding company. Typically, a holding LLC will have
administrative significance, but no direct operations tied to it. Rather, it
will own the assets required to operate the LLCs beneath it.
- This scenario may be attractive
when a business owner is looking to sell a business line or spin off one
of their businesses.
- It may also be beneficial for an
established company that wants to fund starting a new business.
- Structuring multiple businesses
this way offers protection for the individual LLCs against the lawsuits
and debts of the other LLCs and liability protection for parent LLC
owners.
In
this scenario, we also have some disadvantages:
- The tax and legal impacts of this
option can get a little complex, so it’s advisable to consult with a tax
advisor or attorney when structuring businesses as a parent company and
subsidiaries.
- Creating and running multiple
LLCs involves filing Articles of Organization for each company and having
separate LLC operating agreements.
- Each LLC must maintain its own
records, bank account, payroll, and tax documents.
3.
Create a Series LLC
Another
option is to create a series LLC. Nevada Registered
Agent Service™
can form this at the time of the original articles of organization are filed.
A series LLC is a
unique form of limited liability company ("LLC") in which the
articles of formation specifically allow for unlimited segregation of
membership interests, assets, and operations into independent series. Each
series operates like a separate entity with a unique name, bank account, and
separate books and records. A series LLC may have different members and
managers in each series. The rights and obligations of these members and
managers differ from series to series. Each series may enter into contracts,
sue or be sued, and hold title to real and personal property.
A Series LLC is
most commonly formed to protect assets. Also, it helps to reduce costs related
to creating numerous LLCs and formation fees. Series LLCs were originally
created for the purpose of streamlining collective investments and structured
financial positions such as ETFs (Exchange-traded Funds) and mutual funds.
Expenses are reduced because only the master LLC needs to be maintained with
the Nevada Secretary of State (SOS), decreasing renewal and formation fees.
Also, the master LLC may only be required to file one income tax return with
the Internal Revenue Service (IRS).
In 2005, Nevada and
many other states added the Series LLC to the list of entity forms. This opened
the opportunity for a Series LLC to enter into contracts, grant security
interests, sue or be sued, and hold title to assets, just like any other type
of entity. A Series LLC can be formed in two ways:
- With a
single member (not recommended).
- With
multiple members.
There are two main
benefits to a Series LLC:
- The
opportunity to form and then renew as only one business rather than
formulating multiple entities.
- Only one tax
return needs to be completed by the master LLC which may include a number
of subsidiary LLCs under its umbrella.
Segregating Assets in a Series
LLC:
An asset may be
segregated within a Series LLC by forming a separate business entity for each
asset. The purpose of segregating the asset is to protect it from liabilities
and lawsuits from other cells. Certain states will allow the master LLC to file
the one and only filing fee for the umbrella LLC. Remember, there is currently
very little legal precedent regarding Series LLCs. Therefore, if you're
operating in a state that doesn't grant this special barrier of protection, you
have no guarantee that your assets will be covered.
For example, if the
master Series LLC is registered in Delaware and the business operates in
Illinois, then any legal proceedings will most likely be subject to Illinois
state law. Certain states may recognize the Series LLC, but they may not
recognize the liability protection between cells. In other words, if you're
operating a Series LLC in a state that doesn't automatically grant liability
protection between cells, then you're taking a massive risk by operating within
that state.
Forming a Series LLC:
Starting a Series
LLC is much easier than you may think. The formulation process is quite similar
to forming a regular LLC. When forming a Series LLC, simply create the same
articles of organization that you would for a standard LLC but include a
provision that authorizes for the formation of cells within the entity. You will need to file articles of formation with the
appropriate governmental entity in a state where series LLCs are permitted. To
be distinguished from a regular LLC, most states require that the articles of
formation specifically state that the LLC is authorized to form series.
You will need an operating
agreement for the master LLC and one for each series you plan to form. A
series LLC can create additional series whenever one is needed. The master LLC
operating agreement generally provides rules for the overall operations of the
series LLC. Likewise, operating agreements for each series provide customized
rules for operations.
One of the benefits of a series LLC is that
you only have to file articles of formation once. After forming the initial
master LLC, each additional series is formed through internal mechanisms
spelled out in the operating agreements. Typically, this is done by amending
the master LLC operating agreement and adding an additional series.
All contracts,
notes, deeds, and agreements are signed under the name of the corresponding
subsidiary LLC. Additionally, each subsidiary name must include the master
LLC's name in the title (e.g. "Sample Company, a Nevada Series LLC").
By doing so, it provides notice and discloses the subsidiary's existence. The
name of each subsidiary should be properly capitalized. There should be no
ownership interest between subsidiaries and no co-mingling of funds. If each
subsidiary is to be respected and treated as a separate company, along with its
own legal identity, then it must act accordingly. As a business entity, series LLCs are very flexible and
simple to use. The series LLC can be used by real estate investors who own
multiple properties. Each series isolates and protects its properties from the
liabilities of the properties in other series. Companies with different profit
centers can use series LLCs to segregate and shield each business operation.
The most important
characteristic of a series LLC is the liability protection that is available to
each series. Assets owned by one series are shielded from the risk of liability
of other series within the same series LLC. A series LLC is similar in concept
to a corporation with several subsidiaries. However, the series LLC concept is
designed to segregate risk within separate entities without the cost of setting
up new entities. To maintain the liability
protection of each series it is important to treat each series as a separate
company. This includes having a separate bank account, maintaining separate
books and records, signing contracts using the name of the series, documenting
all transactions, and keeping adequate amounts of capital on hand for business
purposes.
Can
an LLC Own Another LLC?
Yes,
as I described in option three above, one LLC can own another. LLC members
(owners) may be individuals or business entities, such as an LLC or
corporation. Structuring multiple business ventures this way is common among real estate investors and developers who wish to keep
the liability risks of individual properties from affecting the assets of the
other properties they own.
Realize
that having a parent LLC and subsidiaries doesn’t completely insulate business
owners from liability. When a parent LLC is sued, all of that LLC’s assets,
including those of its subsidiary LLCs, are at risk. Also, a business owner’s
personal assets will be at risk if someone sues the owner for personal
negligence or because that owner personally guaranteed a business loan that the
LLC has defaulted on.
Nevada
Commercial Registered Agent
Entity # E0502742015-6
NV Business ID NV20151637034
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© 2024 Marc Gohres
Revised April 7, 2024 10:24 AM
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