Is it Safe to Operate Multiple Businesses Under a Single LLC?

If you own multiple businesses, you might be wondering if it is safe to operate them under the same LLC. Although it’s possible, this approach has a potentially significant downside. If someone sues one business, not only will that business’s assets be at risk but so will the other businesses’ assets. When someone runs several companies under the same LLC, those companies are not separate legal entities. Therefore, each is liable for the others’ debts and legal issues.

Unlike a Sole Proprietorship or General Partnership, an Limited Liability Company is a separate legal entity from its owners. The LLC business structure has become popular among small business owners because it provides the simplicity of pass-through tax treatment (all profits, losses, credits, deductions, etc. flow through to the owner’s personal tax return) while protecting the owner’s personal assets from the business’s debts and legal liabilities.

An Example of the Risks of Running Multiple Businesses Under One LLC

When running two or more businesses under one LLC, if one business runs into financial hardship or legal troubles the other businesses under that LLC will share the responsibility for those issues. The businesses are not separate entities in their own right, so in the eyes of the state, federal, and local governments, they are one company.

As a hypothetical example, imagine George Mosby forms ABC Car and Truck Repair, LLC to run his vehicle repair business and then decides to branch out and begin to offer towing services. He wants to brand that line of business as a separate company but opts to operate it under his existing LLC. He does so by registering for the fictitious business name “ABC Towing Professionals,” which enables him to avoid forming an entirely new business entity for his towing services. Now, because he’s operating the vehicle repair business and the towing business under ABC Car and Truck Repair, LLC, both businesses share each other’s liabilities.

So, if ABC Towing Professionals causes damage to someone’s vehicle when hauling it away and the customer sues the business, ABC Car and Truck Repair will be named in that lawsuit as well because there’s no legal separation between the two businesses. Both are considered one in the same in the eyes of the law.

Final Thoughts

While forming and maintaining just one LLC may cost less initially and have fewer ongoing business entity compliance fees, the lack of legal separation could eventually be more costly as the assets of not one but all businesses under the LLC may be used to settle outstanding debts and reparations in lawsuits.

Additionally, it may be difficult to keep accurate track of financial performance of multiple businesses when they’re run under the same LLC because they are not separate tax entities.

Forming separate LLCs for each business protects not only the owner’s personal assets but also each individual business because they are separate legal entities.

To assess whether forming multiple LLCs is right for your situation and goals, I recommend discussing the pros and cons with an attorney, accountant, and tax professional.