Multiple LLCs for the Serial Entrepreneur
The entrepreneurial spirit and drive are responsible for small businesses being the major job generator in America. Entrepreneurs take risks, invest in their own skills, and often have more than one business iron in the fire. The most common approach of many is to place several small businesses into one LLC. This works, but there could be a better way with multiple LLCsi.
Multiple LLCs with a single owner are perfectly legal, and there is no limit to how many you may want to form. If you are beginning to get interested, there are some drawbacks. There is more paperwork, as each LLC has corporate paperwork, its own EIN, Employer Identification Number, and its own tax reporting. These take time and money, but there are benefits that could make the multiple LLC approach right for you.
Multiple businesses under one LLC umbrella each liable for the business activities of the others. It is one bucket, and the risk gets shared by the businesses. Splitting the businesses off into separate LLCs splits out the risk as well. None of the individual businesses are liable for creditor or legal actions against any of the others. There is also the chance that one business may fail, as that is what entrepreneurial risk is all about. If so, the other businesses are not liable for debts or other obligations of the failed business.
Different Entities Deliver Financial Advantages
The first and most common financial advantage enjoyed by the owner of multiple LLCs comes from the fact that each files its own tax return and this means that the owner can take profits in ways that keep income in lower tax brackets.
Another advantage involves government and organizational incentives offered to spur new business. In most cases, starting a new business in an existing LLC would not qualify for special incentives. Opening the new business as a newly filed LLC would qualify and allow the owner to take advantage of incentives.
Easier Splitting for Business Funding and Sale
Often the entrepreneur will seek venture capital or an angel investor to kick the business growth into high gear. A business that is mixed with others in a single LLC creates challenges in determining the real operational and equity numbers for the single target business. It can cause investors to turn away when they have other easier lucrative opportunities.
While every entrepreneur wants a highly profitable and successful business, most of them do not plan to keep it forever. The plan is to grow it to a point that makes sense for selling it and taking the capital gains. As with the funding discussion, potential buyers for a company can find the challenges of breaking out its individual finances from a group of businesses to determine the value of the business.
Either for the investors offering funding or for potential buyers, pulling together all the loose ends to close a funding or purchase deal is much easier when the target company is not mixed in with other operating businesses.
Multiple LLCs may or may not be right for your entrepreneurial ventures, but it is worth considering the idea if you are considering starting more than one business.
i Here Are the Benefits of Multiple LLCs or Corporations for Your Businesses – Entrepreneur.com