The limited liability company (LLC) business entity type is an attractive option for many individuals, especially owners of startups and budding entrepreneurs. Since it limits personal liability when it comes to business debts, it provides protection to the members. At the same time, it does not involve the complicated administrative requirements asked of corporations.
Creating Your LLCs
Forming an LLC requires you to register with the state by filing the appropriate paperwork. You also need to pay the corresponding filing fee. The specific steps in the process will depend on the state where you want to establish the company.
Aside from that, your LLC should also have an operating agreement. This document will include details on how you will manage the business and the responsibilities of each member of your company.
In some cases, multiple LLCs are created. This situation is not something new. A lot of people do this, whether they are sole owners or part of a group. Among the common reasons they choose to manage more than one company are the following:
- They have two or more separate businesses.
- They want to lessen the risk in case one of their businesses fails.
- They are planning to launch a new product but do not want to put the rest of the LLC at risk in case the product does not succeed.
- They are an LLC member who wants to invest in a different business.
- They have a rental real estate business. Setting up multiple LLCs is common for landlords who own several buildings.
Before finalizing your decision, you have to keep in mind that managing more than one LLC can be complicated. You will have to take care of more paperwork, tax obligations, and fees. You have to make sure that the liabilities do not outweigh the benefits. If you want to aim for more organized management, you can get help from a professional third-party registered agent like DoMyLLC.
Preventing Conflicts of Interest
When you register LLC, you have to always put the interests of the company ahead of your own. This is all the more important when running more than one business. You may have duties in all of those companies, so the challenge is to not violate any of them to promote the interest of one entity.
You have to avoid circumstances that will lead to conflicts of interest. Do not get involved in secret deals just because you want to receive personal benefits and profits. For example, you own LLC A that needs certain supplies that LLC B offers. You cannot simply award the contract to LLC B just because you own it too. You have to go through the proper purchasing process.
Some states may allow you to take part in this type of transaction. However, you have to disclose the potential conflict of interest to other members of LLC A and allow them to take part in choosing where to give the contract.
The law in every state varies. That is why it is important to understand the duties of LLC members that the state has set. In most cases, member-managed LLCs have the duty of loyalty to the company. It means you have to put the success of the LLC above your personal advantages. Members will have to avoid any situation that involves a conflict of interest. Meanwhile, individuals in manager-managed entities may not have the same duty unless they also act as managers.
Some states may allow you to change or eliminate certain duties by including and enumerating them in the company’s operating agreement.
Being a member of multiple LLCs comes with more tax responsibilities. You will need to file additional forms. You also have to keep track of the income and expenses of each LLC. All of those should be kept separate.
- For Single-Member LLCs – If you are the sole owner, you will have to report the income and expenses of every LLC the same way sole proprietorships do. Use separate attachments for each company and report them in your personal tax return.
- For Multi-Member LLCs – These types of LLCs get taxed like partnerships, so each LLC needs to file informational tax returns. These should indicate the total income and expenses of the company. The members will report their shares on the schedule attached to the personal tax return.
- Corporation Taxes – Some LLCs choose to file taxes in the same way corporations do. In this case, the company will have to file all the appropriate returns for the type of corporation they have chosen.
Before you register an LLC, you need to understand specific regulations that the state has implemented. The same rule applies if you want to own more than one company. If the situation calls for it, complete the necessary process to legalize the operations of each of your LLCs.
Whether you are starting your first LLC or planning on organizing additional ones, you will need to file formal documents properly. Managing more than one business may be overwhelming, so if you need help in accomplishing the multi-step process or ensuring business compliance, contact DoMyLLC today.