1. When It Makes Sense to Own Multiple LLCs
2. Potential Complications of Owning Multiple LLCs
3. Forming More Than One LLC
4. Conflicts of Interest
5. An Example of a Conflict of Interest for an LLC Member
6. Taxation on Multiple LLCs

How many LLCs can you have is a common question for people who want to own more than one business. The answer is that it's fairly common for entrepreneurs to own multiple LLCs as either sole proprietors or as partners, which are known as members. LLCs, which are also known as limited liability companies, exist as a way for business owners to limit or reduce the amount of personal liability for debts incurred by their businesses.

When It Makes Sense to Own Multiple LLCs

There are several times it makes sense to own more than one LLC, including:

  • When you own two or more businesses and want to reduce the risk you incur if one of the companies fail. Using this approach, if one business fails and you lose your investment in it, your investment in the one that remains intact isn't affected.
  • When a new product line is launched, and you want to protect the existing part of the company in the event the new product fails.
  • If you already have part ownership of an LLC and make the choice to invest in another one.
  • When you own multiple real estate rentals, setting up an LLC for each building protects the rest of your holdings if anything happens with one of them.

Potential Complications of Owning Multiple LLCs

An LLC offers more flexibility than a corporation, and there are fewer requirements when it comes to recordkeeping. Although, even with fewer recordkeeping requirements, things get more complicated when you own more than one LLC. Owning multiple LLCs means:

  • Extra paperwork
  • Additional fees
  • Extra tax forms to file
  • Higher risk of encountering conflicts of interest

When deciding whether to form multiple LLCs, compare the potential benefits of reduced liability for each entity to the added fees and paperwork that's involved in operating more than one LLC.

Forming More Than One LLC

Forming an LLC means filing articles of organization and paying a filing fee to the state where the business is going to operate. An operating agreement is also necessary to describe:

  • How you plan to manage the LLC
  • The rights of each member and manager
  • The responsibilities that fall to each of the members and the managers.

When more than one LLC is formed, all of that paperwork, plus the filing fee, is required for each one. Some states also require LLCs to file yearly reports along with annual fees.

Conflicts of Interest

As an LLC's member, you have an obligation to avoid conflicts of interest by putting the interest of the company in front of your own interests. As the member of an LLC, you aren't permitted to:

  • Directly compete with the LCL
  • Make a cloaked deal with the LLC that is of personal benefit to you and the detriment of the LLC
  • Profit from the LLC in a secret manner

When you own more than one LLC, it gets complicated sometimes because you have an obligation to both or all the LLCs where you are a member. You can't legally violate your obligation to one at the expense of the other.

An Example of a Conflict of Interest for an LLC Member

Using the example of someone who owns a lodging facility that's an LLC and a bedding supply company that's an LLC, it might seem intuitive for your lodging facility to contract with the bedding supply business. However, if one of the businesses were to benefit more than the other, you would be violating your obligation to avoid a conflict of interest. One possible exception would be if you are upfront about your connection to each business and other LLC members agree to the deal with full knowledge of your ownership in each company.

Taxation on Multiple LLCs

An LLC with a single member, or owner, is taxed the same as a sole proprietorship. When multiple LLCs are owned by one person, each LLC's income and expenses have to be reported to the IRS on a separate schedule that gets attached to the personal tax forms of the member. For LLCs with multiple members, taxation is automatically assessed in the same manner as a partnership.

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