You might be wanting to start a business but wondering if a limited liability company is the best decision for you. Well, a limited liability company has many benefits, especially as it offers liability protection and specific tax advantages to its members.
Now, the big question is do you really have to stop at just one LLC? The answer is a huge NO because a limited liability company can own multiple other LLCs. When this situation happens, the owner LLC is referred to as either the holding LLC or the master entity while the subsidiaries are called the LLC cells. Meanwhile, all the owners of the LLC are known as the members and it doesn’t matter if it’s a corporation, a foreign entity, an individual or even another LLC.
There are both pros and cons when a holding LLC decides to create LLC cells. First and foremost, the holding LLC minimizes financial risks by creating other subsidiary cells. This means that if one of the subsidiaries is suddenly plunged into financial crisis, legal trouble or loses its value, the others won’t be affected in any way. Imagine operating three lines of businesses under a single LLC without separating them. If one of these three businesses gets sued, the other two businesses will also be liable for the lawsuit. However, if you decide to separate your LLCs, by creating LLC cells, you are technically separating accountability which can be a major life-saver during crises.
The cons of having multiple LLC cells under an owner LLC are mostly in terms of costs. Establishing an LLC requires a filling fee which needs to be paid for all the LLC cells thereby making the process expensive. It is also worth noting that each of the LLC cells requires their individual bank accounts, financial records, payroll and tax documents, which could also be expensive.
Another major disadvantage is the fact that limited liability protection doesn’t go both ways for the holding LLC and its LLC cells. This means that if the owning LLC gets sued or is plunged into a financial crisis, its creditors have a right to go after their LLC cells.
To effectively run several LLC cells under a holding LLC, members need to ensure that the subsidiary entities are under the control of the owner LLC. This will go a long way to allow the subsidiary entities to enjoy the many advantages that come with being under the holding LLC.
In a nutshell, you are allowed to have an LLC that owns other LLCs but it’s imperative to weigh the pros and the cons before making a step in that direction. Your ultimate choice should be one that will result in business growth and more profits.