The authority to create a limited liability company rests exclusively with the local governments of the states and the District of Columbia. As a result of many jurisdictions adopting the principles of the Revised Uniform Limited Liability Company Act, the bodies of law governing LLCs have become relatively uniform. Most of these laws do not prohibit business owners from creating multiple LLCs or from acquiring numerous membership interests.
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Provided you have separate and distinct businesses, there is no restriction on the number of LLC entities you can create. You must comply with the procedural formation requirements for each LLC you create. This requires completion of separate certificates of organization or its equivalent for each LLC. Additionally, you must choose a different business name for each entity. However, the agent you designate to accept legal service of process and the business address can be the same for all LLCs.
There are no restrictions on the number of existing LLCs in which you can acquire a membership interest. However, each LLC may have an operating agreement in place that imposes different requirements you must satisfy before acquiring a membership interest. Although the minimum requirement for admission in the absence of an agreement is unanimous consent of all current members, some may require you to make a contribution of cash or property, a promise for future contributions or an obligation to provide services. In addition, one LLC may prohibit you from obtaining an interest in a competitor LLC as a condition of membership.
Conflicts of Interest
The owners of an LLC must adhere to a minimum standard of conduct that imposes various fiduciary duties. Most jurisdictions impose a duty of loyalty on LLC members that requires they not engage in business activities that compete with the LLC and refrain from self-dealing when engaging in LLC business. A violation of this duty may render you personally liable for the amount of damage or loss the breach causes the LLC. In the event you acquire multiple LLC interests, the duty of loyalty you have to each LLC may restrict your ability to actively participate in another business if the operations are similar.
A limited liability company and its members must adhere to all federal tax laws that apply to the business. When you hold an interest in multiple LLCs, you may be subject to various tax reporting requirements. The IRS classifies all single-member LLCs as sole proprietorships and all multi-member LLCs as partnerships for tax purposes. However, each LLC may elect corporate tax treatment by filing IRS Form 8832. Therefore, through no choice of your own, you may be required to prepare a Schedule C attachment to your personal income tax return for each LLC of which you are the sole member, report the income from each Schedule K-1 you receive from each business that is subject to partnership taxation and pay income tax on dividend distributions you receive from LLCs that elect corporate tax treatment.
References & Resources
- University of Pennsylvania Law School: Revised Uniform Limited Liability Company Act 2006
- “Wiley CPA Exam Review Volume 1”; O. Ray Whittington, PhD.; 2010
- Internal Revenue Service: Publication 3402 – Taxation of Limited Liability Companies