Understanding LLCs and Their Tax Options
The answer is yes. It is possible and permissible to operate multiple businesses under one LLC. To do this, many entrepreneurs use what is called a "Fictitious Name Statement" or a "DBA" to operate an additional business under a different name.
Owners can choose to have the company taxed as a C-Corporation or an S-Corporation depending on which structure provides the biggest advantage to the business. LLCs are owned by members who have an ownership interest and rights within the company. The LLC members establish the company’s ownership structure by preparing a written Operating Agreement which details how the company should operate.
The best state of incorporation to begin a small company is usually your home state where you will likely do most business.
An S corporation is designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to pass directly to owners’ personal income without corporate tax. A private corporation that meets requirements can elect to be taxed as an S corporation. An S corporation has restrictions including limits on shareholders and stock.
Multiple Ventures and the Structure to Choose
There are no federal or state limits on the number LLCs someone can own. The LLC structure offers liability protection and tax flexibility.
- Single entity with multiple DBAs
- Form separate LLCs
- Create a holding company with LLCs beneath it
If you attain multiple LLCs, you may have a duty of loyalty to each limiting ability to participate if operational similarities exist.
Owning multiple companies can complicate things. You may struggle to avoid violating duties of one company while participating in another.
Holding companies don’t conduct business directly. They act as an umbrella LLC for subsidiaries and both enjoy pass-through taxation.
Tax Implications of Owning Multiple Entities
The benefit of an S corp is less taxes. But multiple S corps means paying multiple social security taxes. Therefore, having LLCs around a main S corp may be the best option. It’s advisable to consult a tax planner.
Can an LLC Own Other Businesses?
Your LLC can avoid double taxation by electing S corp status. However, an S corp cannot be owned by another LLC. Members must be individuals, estates, or certain trusts. An S corp LLC enjoys pass-through taxation, with profits being taxed only once at the individual shareholder level.
Owners of an LLC are also referred to as members. Members can be other businesses, individuals, or other LLCs.
If an LLC member owns multiple businesses, forming a master LLC with subsidiaries is often advised to minimize risk.
To elect S Corp tax status for your multi-member LLC, file Form 2553 when registering your business. Existing LLCs can also use Form 2553 to change their tax status to that of an S Corp.
An LLC provides liability protection to owners, and owning another LLC can offer an additional layer of protection.
A tax professional can advise on how to convert an LLC to an S corp, and how to prepare and file taxes accordingly.
Important Considerations When Operating Multiple Business Entities
An LLC taxed as an S Corporation still requires additional tax-filing paperwork.
Can an S Corporation Own a Single Member LLC? Yes.
An LLC or Partnership may own any or all of another entity EXCEPT an S-Corporation.
You will be required to obtain a new EIN if you form a new Multi-member LLC or a new Single Member LLC taxed as a corporation or an S corporation.
If you want to start an S corporation in Hawaii, you need to form a LLC or corporation and then apply to the IRS for S corp status. An IRS tax classification called an S corp is not a business structure itself but allows an existing corporation or LLC to be taxed under the S corp status, enabling income to pass through to shareholders without being taxed as corporate income.