How Many LLCs Can One Person Have? The Pros and Cons

The Benefits of Owning Multiple LLCs

First, let’s look at some of the potential advantages of splitting your business activities across more than one LLC:

• Liability protection – If you operate wholly separate businesses, forming a new LLC for each one better isolates the assets and liabilities. If there is a lawsuit or claim related to one business, the others should be shielded.
• Flexible taxation – With each LLC, you can choose pass-through taxation (default) or to be taxed as an S-corp or C-corp. This allows optimizing taxes for each business based on profitability, owner’s salary vs distributions, etc.
• Raising capital – You may want to keep businesses separate to attract investors to specific activities without exposing other assets. Multiple LLCs help partition assets, ownership, equity, etc.
• Market differentiation – If operating under different trade names or brands, separate LLCs keep identity and marketing distinct for each business.
• Easier sales or transfers – With assets for each business self-contained in its own LLC, you avoid complications if you ever want to sell one but not the other. Clean separation makes transactions simpler.

Challenges of Maintaining Multiple LLCs

However, there are also some potential downsides of having multiple LLCs to be aware of:

• Increased filing fees – Each LLC must pay its own state formation and annual report fees. This duplicates costs for each entity created.
• Additional administrative work – You’ll have to keep separate accounting records, tax filings, and operational compliance for each LLC. This can mean more paperwork and bookkeeping overhead.
• Tax complexity – With different entities, you may have to file multiple business tax returns rather than reporting on one schedule. A tax advisor can help with optimizing taxation across multiple LLCs.
• Alternative options – In some cases, a “series LLC” may allow for internal divisions under a single LLC. Or a holding company with partly owned subsidiaries may work rather than wholly separate entities.
• Company credibility – Having many LLCs tied to an individual could raise questions about business fragmentation, shell entities, or artificial complexity.

As you can see, utilizing multiple LLCs has advantages and disadvantages to evaluate. The right choice depends on your specific situation and goals.

How to Decide If You Should Form Multiple LLCs

So when does forming more than one limited liability company make sense? Here are some key factors to help decide:

Nature of the Businesses

• Are they entirely separate activities or closely related?
• Do they operate in distinct markets or serve different customers?
• Are there incompatible business models or strategic differences?

Legal Liability Risks

• Does one business involve high-risk products, services, contracts, etc. that could generate claims?
• Would litigation threats to one business put the other at serious risk absent separation?

Business Locations

• Will business activities span different facilities like retail shops, offices, warehouses?
• Is geographic distance a factor in operations or customer base?

Business Size and Revenue

• Are these independent multi-million dollar operations or smaller side businesses?
• At what organizational scale do maintenance costs outweigh convenience?

Future Plans

• Do you envision sale or transfer of one business but not the other?
• Could segmentation facilitate growth, investors, partnerships, etc?
• Is this structure aligned with long-term goals?

As you evaluate these kinds of factors, you’ll get a sense of whether multiple LLCs are overkill or truly beneficial for your situation. A legal and tax advisor can also provide guidance based on your specific circumstances.

What Are the Rules and Requirements for Multiple LLCs?

If you do decide to form multiple LLCs, here are some key requirements to keep in mind:

• Each LLC needs a unique official name and available domain name if applicable.
• You’ll complete separate filing for articles of organization for each LLC.
• While registered agents can be the same, official business addresses should be different.
• LLCs must maintain distinct financial and other business records.
• Be mindful of any conflicts of interest between LLCs with common ownership.
• Clearly separate activities, assets, contracts, payroll, etc. between LLCs.
• Consult an accountant to optimize tax filings and estimated payments for each entity.
• Carefully follow rules if employees, vendors, or assets are shared between LLCs.
• Understand applicable regulations if businesses fall under special licensing, permits, etc.
• LLC agreements should reflect purpose and structure of each separate entity.
• Seek expert legal and tax advice to ensure full compliance and proper structuring.

Alternatives to Forming Multiple Independent LLCs

As mentioned earlier, establishing multiple LLCs has some downsides. In some situations, there may be alternatives to consider:

• Series LLC – Some states allow a special type of LLC that creates internal divisions under a single entity. Liability protection between “series” may be similar to separate LLCs.
• Holding company – A parent entity with wholly or partly owned subsidiary LLCs below it. May get some benefits of separation while consolidating management.
• DBA names – File “Doing Business As” name registrations for each brand or market, but keep under one LLC.
• Tax elections – Make S-corp or C-corp tax selections on a single LLC to optimize revenue, distributions, etc.
• Corporate subsidiaries – Rather than separate LLCs, establish true corporate entities under a controlling parent LLC or corporation.

Should You Form a New LLC for a New Business Idea?

A common scenario is wondering if you should set up a new LLC every time you have a new business idea or side project. Often in the early stages, a single LLC provides adequate coverage as you test and validate the business model. Later, once generating significant revenue and exposure, forming a distinct entity may make more sense.

For small ventures or side businesses, the administrative burden of multiple LLCs likely outweighs benefits early on. Starting with a single catch-all LLC lets you pursue new ideas without legal complexity upfront. Down the road as any individual activity grows, you can still spin it out into its own company.

Talk to Your Advisors Before Forming Multiple LLCs

While this covers some of the basics, your specific situation may have additional factors to consider. Forming multiple entities impacts legal liability exposure, tax planning, accounting, insurance needs, and more.

Before establishing multiple LLCs, have in-depth discussions with your attorney and tax advisor. Make sure you fully understand the implications and how to properly structure and operate multiple entities.

Proper legal formation, compliance, and documentation are critical to realizing benefits like liability protection. Tax optimization across different LLCs requires expertise as well to avoid missteps.

The Bottom Line – Weighing the Pros and Cons of Multiple LLCs

On the surface, having multiple LLCs may seem attractive to separate liability exposure across different business activities. However, increased legal and tax complexity along with higher administrative costs can make it less beneficial in practice.

Analyze each of your specific businesses and plans. Seek expert advice from business attorneys and accountants. In many cases, starting with a single overarching LLC that houses different projects or activities may be the better approach. Down the road as any individual business line grows in scale, you can still form a distinct entity for that specific LLC.

Carefully weigh all the pros and cons based on your particular situation and goals. Don’t assume more LLCs automatically equals better asset protection. Start simple initially while validating your business models. Then incorporate additional legal entities strategically over time as warranted.