No law limits the number of LLCs an entrepreneur can own. Forming multiple LLCs may make sense under certain circumstances: for example, companies that have several rental properties, separate businesses with shared ownership, or when one business makes more money or has more assets than the others. Separate business entities may also be beneficial when launching a new product or selling a single company from a business portfolio. However, establishing separate LLCs will increase administrative burdens.
If you have multiple business ventures, forming more than one LLC may provide the following benefits:
Although forming multiple LLCs could provide benefits that might appeal to a business owner, there are also downsides to consider. Keeping each LLC legally distinct requires separate bank accounts, annual reports, tax forms, filing fees, operating agreements, registered agents, financial records, employee ID numbers, and business licenses and permits. Any commingling could provide creditors with grounds to argue that the businesses are not, in fact, distinct legal entities, which could weaken the liability shield between them.
In addition to higher compliance burdens and costs, multiple LLCs could create conflicts of interest, especially if the companies engage in transactions with each other. When multiple LLCs with common owners contract with each other, the owners should be careful to avoid promoting the interests of one of them over the others. Doing so, especially without disclosing the potential conflict and obtaining consent from the other owners, could violate duties, such as the duty of loyalty, that LLC owners may owe to the LLC or to other owners under state law. LLC owners must be familiar with the duties they owe and the extent to which those duties may be modified or waived by explicit provisions in their operating agreements.
Forming multiple LLCs could be advantageous for business owners who want to expand their business or investment portfolios while minimizing their risks. You should discuss creating one or multiple LLCs to hold your businesses or assets with a business attorney. Book a FREE Discovery Call so we can help you make the best decision for your unique situation.
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