What Are the Pros and Cons of Using Your LLC to Be a Member of Another LLC?
I am the sole owner of an LLC. I am entering another business venture -- a 50/50 ownership -- with a friend and we are forming a second LLC in an industry related to my first LLC. I am thinking about making my personal LLC the member of the joint LLC, instead of myself. What would be the advantages and disadvantages? I have heard there are advantages like another layer of legal protection, reducing the number of tax entities, etc, but I'd like to know more.
Having one entity own part of another has, as you noted, its pros and cons. On the plus side, you get an extra layer of liability protection. In addition, there may be tax advantages to having this income flow through your LLC rather than coming to you directly. The downsides include the bureaucracy of having more entities than may be necessary and possible complications should you choose to take on another business owner in your own LLC. Because the solution that's right for you depends on your personal tax situation and your ultimate goals for each of these businesses, make sure you speak to legal and accounting advisors regarding your specific situation.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.