When Do You need More than One LLC?


How many LLCs you may need depends entirely on your business or businesses. For example, if you are going to use the LLC to operate an Internet marketing business, you may need just one.

But if you’re going into business with a partner, you may want three LLCs. The first one will operate the business, with the second and third ones holding your ownership and your partner’s ownership. This helps to protect you from each other – if there’s a later breakdown in relations, and you wind up litigating, you aren’t suing each other personally. (That one structural choice can potentially save thousands).

Keeping your ownership in a structure separate from a business partner is also a fantastic way to maximize your own medical and pension benefit opportunities. If you’ve both got your own LLCs holding your ownership, each of you can take advantage of a Solo 401(k) pension plan, by setting up plans in each LLC. If you hold your ownership in the LLC, on the other hand, you can’t do this. You’re stuck with a regular 401(k) plan, and not only that, you will have to offer those same 401(k) plan benefits to all of your employees. Medical benefits can be set up the same way – you can set up medical plans at your personal LLC level, and customize each plan to fit your family’s needs, provided the ownership percentage allows you to flunk the controlled group test for nondiscriminatory plans.

Finally there are great tax reasons to use the tiered LLC approach. If one of you needs everything to live on, while the other does not, you could each benefit by electing the best tax choice at the personal LLC level. Otherwise, one of you will be better off, at the other’s expense or no one will get the treatment they want.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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