Should You Have Multiple LLCs for Your Businesses?

Having multiple LLCs or corporations for your business can be a great way to maximize the potential of your business. This article will discuss the benefits that multiple LLCs or corporations can bring to your business.

What Is An LLC? 

LLC stands for Limited Liability Company. It is a type of business entity that combines the flexibility and tax benefits of a partnership or sole proprietorship with the liability protection of a corporation. LLCs are a popular choice among small business owners, as they provide personal asset protection and limit the owner's liability to the amount of their investment in the company. This means that if the company faces financial difficulties or is sued, the personal assets of the owner(s) are generally protected.

An LLC's owners are its members. Due to most states' lack of ownership limits, members can be people, corporations, other LLCs, and even foreign organizations. There is no constraint on the number of participants. The majority of states also permit one-owner "single-member" LLCs.

There is no restriction on how many LLCs one person may register. Therefore, creating more than one is perfectly legal. On the other hand, you need to do more paperwork than usual. Taxes are now paid separately for each LLC rather than as a larger aggregate sum, so it may be best to seek help for accounting services.

Benefits of Setting Up Multiple LLCs

What are the benefits of setting up many LLCs?

Reducing Liability By Using Many LLCs 

Each new company is further segmented, and any potential shared liability is reduced by forming a separate LLC. If you own three businesses and one fails, the issues are not the fault of the other two. You can shut that one off without jeopardizing the others.

The most prevalent use of limited liability is among real estate investors. Many real estate specialists will set up a new LLC for each property they handle. If one property is the subject of a lawsuit, the other properties will remain unique and unaffected.

It Is Easier To Divide Up Many LLCs

In addition to founding and expanding businesses, entrepreneurs sell them when doing so is financially advantageous. It may be challenging to segregate and arrange the property, contracts, and documentation associated with each business when you operate many enterprises under one LLC.

But if you run several businesses, each as it's own LLC, all that extra paperwork has a use. It is much easier to tie up all the loose ends and sell the whole thing without transferring ownership or removing it from the web of connections that is a multi-business LLC.

Separating the assets and connections of one sub-company from a single LLC is frequently so time-consuming that it renders the sub-company unsellable. Many investors won't even glance at a disorderly mess; they prefer a well-wrapped deal. Not that selling is impossible, but the bar has been dramatically raised.

Many LLCs Are Distinct Legal Entities

This is the most relevant example when it comes to taxes. The business tax system can sometimes seem complicated and unfair, but keeping several businesses under different LLCs can give access to lower tax brackets where their combined income would otherwise put their owner in a higher bracket. Moreover, a newly formed LLC is typically eligible for incentives to new businesses, whereas a new company founded under an existing LLC is not.

Conclusion 

Forming multiple LLCs or corporations can benefit businesses, as it can help provide liability protection, offer tax benefits, and help separate and protect assets. Dividing and specializing activities into multiple entities can also help improve operations' efficiency. With the help of an experienced accounting firm, businesses can determine whether the formation of multiple LLCs or corporations is the best option for their individual needs.

Hawk Tax Solutions is an experienced team of Tax & Accounting professionals. Our results-driven tax firm is committed to providing solutions and peace of mind to our clients. Contact us today!