Thursday, June 16, 2011
Should I set-up More than One LLC?
Many of my clients own and operate more than one business. Many of my clients own the real estate where their businesses operate. Many of my clients own multiple pieces of real estate. In each of these situations I am often asked whether it is necessary or beneficial to set-up a separate LLC to own each of the separate businesses and/or real estate parcels. The answer is almost always: “it depends.”
It is generally advisable from a liability shield and asset protection perspective to set-up a separate LLC or corporation to own and operate each separate business. By doing so the business owner is able to protect the assets of each business from the liabilities of the other business. If both businesses are run as divisions of a single LLC or corporation, the assets of both businesses will be reachable by the creditors of either business.
If the business owner also owns the real estate where the business is located, it is also generally advisable to set-up a separate LLC to own the real estate. In addition to protecting the real estate from claims of creditors of the operating company, it also provides a way to get funds out of the operating company to the owners (as rent) without paying self-employment tax or payroll tax on such amounts.
Where someone owns multiple parcels of real estate, it is often advisable to hold different parcels in different LLCs. Some clients prefer to put every large parcel in its own LLC. Other clients tend to put similar type properties in the same LLC. For example, if you own industrial, commercial and residential rental properties, you might set-up three LLCs, with the industrial properties in one LLC, the commercial properties in another and the residential properties in a third LLC. Or if you own multiple residential properties in different cities or states, you might set-up different LLCs to own the properties in each location. The reasons for doing this would be to separate the properties by type of risk for asset protection reasons, create privacy as to who actually owns the properties, avoid conveyance fees in the future when the properties are sold and facilitate future gifting or sale of the properties.
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AND ONE MORE THING: Many small businesses share confidential and proprietary information with their employees, contractors, customers and suppliers. This confidential information can include client names, addresses and other client contact information, business methods, business practices and know-how. This confidential information can and often is the life blood of the business. Yet business owners often fail to adequately safeguard this important information. While state law provides some protection for “trade secrets”, such protection is limited and difficult to enforce. Confidential information can and should be protected by a properly drafted and executed non-competition and non-disclosure agreement. Call or email me if you would like to talk about protecting your confidential information at Jsenney@pselaw.com or