Photo by Ivy Aralia Nizar on Unsplash
We talk to so many creatives who run multiple businesses, and inevitably, they want to know whether to form one or multiple business entities, such as LLCs or corporations, to manage various endeavors. So let’s talk about the considerations and scenarios that warrant multiple LLCs and provide guidance on making the decision.
Starting Simple: One LLC
We mostly recommend that new business owners start with a single LLC. This is because you may not know which businesses will gain traction or how they will evolve. In addition, forming multiple LLCs at the beginning can be costly and time-consuming, so starting with one that holds everything can help you save time and resources.
However, if you’re a serial entrepreneur with a clear plan for investing in all your ventures, starting with multiple LLCs may be the right choice.
Transitioning from One to Multiple LLCs
If one of your ventures takes on a life of its own, you can always spin it off into a separate LLC. This separation creates a distinct legal entity for each business, which offers a few advantages:
- Asset Protection: The main reason for forming an LLC is to protect your personal assets from business liabilities. By separating your businesses into different LLCs, you compartmentalize the risks. If there’s an issue with one company, it won’t affect the others.
- Partner and Investor Relations: If you have different partners in your ventures, creating separate LLCs can maintain clear ownership structures.
When to Consider Multiple LLCs
Here are some factors that may indicate the need for multiple LLCs:
- Different Risk Profiles: If one of your businesses carries more risk, you may want to separate it from your other ventures to protect them. For example, a product with higher liability risk, like a camping stove, might be better off in a separate LLC.
- Business Ventures with Different Partners: Separating these ventures into distinct LLCs makes sense if you have different partners or investors for your various businesses. This ensures that an investor in one company doesn’t inadvertently own a part of another.
- Successful Creators with Multiple Businesses: As a creative entrepreneur, you may end up with multiple successful businesses and partnerships. In this case, having various LLCs can help keep each venture organized and protect them from each other’s liabilities.
Conclusion
When deciding whether to form one or multiple LLCs, remember to start simply. You can modify your business structure later.
