When first going into business by yourself (or within a partnership), through online LLC formation services, amidst all the legal documentation that you will be required to file are Articles of Organization. This has to be filed with the Secretary of State relevant to your LLC company location. Once approved, it establishes the duties, rights, liabilities, and other obligations of the LLC and its members (if the LLC is sole owned) or members (if formed in partnership). These Articles of Organization are a necessity to create a legally recognized entity within the State.
With your LLC company legally registered and operational you may look to expand your current company or consider the formation of other businesses that practice entirely different activities.
Here, there are two routes available: either use your current LLC as an umbrella business from under which you operate your new enterprises as DBA’s(‘doing business as’). Or, alternatively, you may instead wish to pursue the business formation of the new companies as individual entities and keep them isolated from one another. In which case, how many LLCs can you have?
Multiple LLC Formation
If you are wishing to further your business pursuits, then you will be pleased to know that there is no limitation to the number of LLC formations you can be involved with, be it alone or as part of a partnership. However, there are things which you should be aware of before branching into other LLC services. You can get acquainted with details in the useful informative article about registering an LLC by D.Kondratiev and find information you need here.
With any additional LLC company you wish to form, it is essential that the Articles of Organization for the endeavor are again filed with the Secretary of State to ensure the legal standing and operational approval of the new business. Owning and running more than one LLC company is more than possible but it must be remembered that it presents a much more difficult challenge – not just with the costs of start-up, best rated online LLC formation services and all the filing of legal documentation but also when dealing with the Internal Revenue Service and paying all your taxes.
Additionally, it is very important that if you become a member of more than one limited liability company, that each LLC has its own isolated business bank account and any financial records/book-keeping activities are maintained separately from one another.
Conflicts of Interest with Multiple LLC Service Membership
Any involvement in business comes with its pros and cons. Being a member of more than one LLC is no different and comes with specific advantages and disadvantages.
When involved in more than one LLC formation, it is essential to avoid any conflicts of interest between the businesses. The activities of LLC members should be conducted with what is called ‘fiduciary duty’. This is a term for legal and ethical relationships based on trust between an individual or organization and clients, ensuring that the customers best interests are put first.
There is more than one angle to the significance of this. For starters, it means that a member of an LLC service must not participate in any activity which puts themself in direct competition with the LLC to which they belong. In essence: they are forbidden from working in any capacity against a company that they have an investment in.
Any side-deals for personal gain which divert revenue or are detrimental to the LLC are prohibited. Should an LLC member violate their fiduciary duty in this manner, they will find themself accountable, and therefore liable, for all damages and losses incurred to the other LLC, should there be any.
Another element to consider is that by being a member of more than one LLC, if the two LLCs are operating similar services, there is the potential for it being impossible to participate fully in the running of either businesses while trying to avoid this pit-fall.
That said, should you become a member of more than one LLC service and the two businesses operate altogether completely different activities, caution still needs to be exercised in regards to company loyalties: It would be seen as a conflict of interest were you to put more time into promoting the interests and generating revenue for one business while neglecting to do the same for the other LLC.
Those are some of the key points when it comes to the disadvantage of multiple LLC membership. So what are the advantages?
The ability to become a member of as many LLCs as you like gives you the opportunity for entrepreneurial experimentation. For example, say your first LLC formation is a home decorating company and is operating successfully with profitable annual revenue. Off the back of this success, you decide to start-up another LLC company: this time a cell phone repair shop.
However, after initial promise, the business slides and fails and you have no other choice other than to shut it down. Yes, you will have lost out on your investment money when starting-up but it’s not the end of the day. This latest enterprise may have been a risk but not a catastrophic one in the event of it collapsing, due to the continuing success of your first business.
Parallel to this is the advantage of having your LLC formations isolated. Should it be public knowledge that the cell phone repair business and home decor LLC were both yours, the collapse of one business could be detrimental to the image of the other, no matter how well established it is. Hand-in-hand with this is of course the fact that should you attempt a third LLC company, in the eyes of prospective customers, the shutting down of LLC #2 could tar the image of #3 before it has even had a fair chance at success.
This separation provides you with a large and comfortable element of protection for your reputation.
Factors to Consider for Multiple LLC Services Members
- You should not become a member of any secondary LLC which will go into direct competition with the first;
- Multiple LLC membership is easy – though it makes life more complicated;
- Provides protection between business failures and successes.
Dmitriy Kondratiev, chief Editor of LLC.services, associate in Axon Partners.
Experienced lawyer (Intellectual Property, Patenting, Contract law, Labor Law, International Private Law).
Worked with IT-companies Webxloo (Delaware), Autoxloo (Florida), SCC (Delaware)