Limited liability companies (LLCs) come in all shapes and sizes, including multi-national companies like Chrysler, Cargill and Toyota. It’s easy to put up an LLC, protect your business against personal liability and have a flexible tax payment structure.
You can make multiple LLCs without any legal limitation. However, be prepared for some serious paperwork. Many successful businesses form multiple LLCs, but what are the benefits?
Pros of having multiple LLCs
Limited liability
This is probably the biggest strength of limited liability companies. If you have several companies and one tanks, the rest will remain unaffected. You can close one company without risk to your other companies. With multiple LLCs, you’re shielded against the following forms of liability:
- Damages – when someone is hurt on your property or by your business
- Vendor disputes – when you are billed more than you owe
- Unpaid business debts
C-Corps and S-Corps protection is similar to LLC liability. These businesses contrast with sole proprietors who have unlimited personal liability, meaning they must pay for debts if their companies lose money. In LLCs, the owner can only pay for losses if they provide additional personal guarantees.
Easy to create and run
LLCs are easy to administer. In most states, you’re only required to fill out an online form, which takes a few minutes. You then pay with a credit card, and everything is set. It’s advisable to seek legal counsel and assistance to ensure you’ve completed all the necessary steps.
You can then visit the IRS website and file to get your business an Employer Identification Number (EIN). Afterward, you’ll need to open a business checking account. Doing this helps separate personal and business expenses.
Easily change the tax structure
LLC owners can decide how they want to pay taxes. The majority prefer the pass-through method. Approximately 95% of all businesses in the United States are pass-through entities, which means that members’ tax liability is included in their personal tax returns.
LLCs are generally cheaper than corporations, among other alternatives. Taxes on C-Corps are higher than on LLCs. C-Corps are taxed twice on profits. For an LLC, you only need to pay self-employment tax.
Unlimited number of partners or members
You can start an LLC with any number of partners. Many LLCs can own a single-member LLC in the form of a multi-layered company. Most industries use this strategy, including pharmaceutical, real estate and branded retail products. You can start an LLC with as few or as many members as you want. It’s different from limited liability partnerships, which are restricted to a maximum of 100 owners.
Cons of having multiple LLCs
Additional tax forms
The taxation process for LLCs becomes complicated with time. You have to prepare for K-1s for all members, and members’ personal returns should be filed with K-1s. Typically, LLC tax forms include excise taxes, if applicable, K-1s and company tax filing.
Large capital base
Outside investors find this type of business risky due to its flexibility and pass-through nature. As a result, many entrepreneurs prefer investing in C-Corps. LLCs also don’t issue shares, making it quite challenging to raise capital.
Filing fees
The fee for filing a new LLC ranges from $50 to $500, depending on state laws. This payment does not include the annual filing fee, which ranges from $0 to $820. Expenses like these increase the financial burden.
How BPM can help
It is essential to consult with an accountant or business lawyer if you are in any confusing multi-business situation. Analyze the benefits and setbacks to determine the best move for your business. Contact us today to discuss your company’s options.
