To put all LLCs under one parent LLC (even across multiple states)?
Let me try my hand at synthesizing and clarifying the previous answers, all of which make good and valid points.
As I general matter, no state's law prohibits or significantly restricts the ability of an LLC (or any other business entity, for that matter) to own an LLC in that state. In fact, a law that purported to do so probably would be unconstitutional! Many if not most state LLC statutes are based on some version of the Uniform Act (with many variations), which does prohibit such ownership.
The parent LLC may or may not be required to register to do business in the 'target state' (i.e. the state where the lower tier LLC is formed). In many states, mere ownership of an entity in that state will not – by itself – constitute doing business in that state. But there may be exceptions to this, and those should be examined. Also, note the tax issues discussed below.
It is best to document the ownership of the 'target state' LLC by the top tier LLC through the operating agreement of the 'target state' LLC. In some states, that would be the only sure way of doing so, as those states do not require the owners to be stated in the official records. In any case, a well-drafted operating agreement is essential for the vast majority of LLCs. A typical operating agreement would not specifically prohibit an LLC from owning – or being owned by – another LLC. But if the 'target state' LLC is an existing company with other owners, the operating agreement may restrict the ability to change the ownership in favor of the top tier LLC.
Regarding tax issues, if the 'target state' LLC is going to elect to be taxed as an S corp, it could not have the parent LLC as an owner (with one minor, technical exception). The parent LLC on the other hand, even if electing to be an S corp, would not be restricted as to owning a lower tier (subsidiary) entity. For federal income tax purposes, single member LLCs are not taxed separately from their owner(s) (the term is 'disregarded entity') – unless they elect to taxed as corporation, including an S corporation. Regarding state tax matters, it is quite true that LLC ownership by out of state persons or business entities may subject the out-of-staters to tax in the 'target state'
As stated in some of the other answers, this is a very complex, technical are; it is very easy to make a mistake. A transaction such as you are proposing should never be attempted without the involvement of an experienced business attorney and tax adviser.See question
If I am licensed as a consultant in Kent, Washington, can I (1) market to and (2) assist clients in other cities or states without having licenses in those areas? I would be operating in Kent, but not limiting business to that.
I agree with the previous answer, but I would add the following. Certain trades, such as contractors, may have to get a local business license in different localities in which they are engaged on jobs. That sort of thing may or may not apply to you. You can check on local business license requirements by browsing the Access Washington web site. I believe there is a link somewhere in the WA Business License page.
Regarding other states, you would need to concern yourself with whether your activities there constitute "doing business" under the laws of the other state(s). These laws vary from state to state and the respective statutes (usually corporation or LLC statutes) contain a partial list of exceptions; other exceptions and clarifications may have been made in court cases in the other state(s).See question
The business is a service business and I talk to clients on the phone. The clients I talk to are potentially all over the world.
The question whether you need to register the foreign LLC in NM may depend on whether you are only "transacting business in interstate commerce." Truck drivers hauling interstate loads, for example, are sometimes exempt under this exception. Without examining the specific facts pertaining to your business conducted through the LLC, it is hard to say whether you will have to register. As suggested in the previous answer, you probably will want to resolve any doubt in favor of registering.
Also, you could be exempted from registration under the LLC Act and still have to register with other agencies such as the Taxation & Revenue department.
I own an LLC in NM that is a tools, parts and equipment sales company. All my sales are on a pick up and deliver basis. I'm wanting to, hopefully, increase sales a little by selling the smaller (easy to ship) inventory I carry through an onlin...
Hello, I would agree with and expand on the previous answers as follows. The sole proprietorship is the simplest of all forms of business enterprise. It's just you (and perhaps your spouse) going into business for yourself. The sole proprietor is the owner and sole manager of the business and is responsible for all debts, claims and obligations of the business. A sole proprietorship has "pass-through" taxation. The business itself does not file a tax return; rather, the income and deductible expenses of the business "pass through" and are reported on the owner's personal tax return. The sole proprietor lists the profit or loss information for the business on Schedule C which is then attached and filed with the owner's Form 1040. Actually, even as a sole proprietor, you can keep a separate set of books for accounting purposes.
I do not believe New Mexico has state-level DBA registration, although some cities/counties have something similar. A statewide trade name registration is possible.
An LLC, of course, is a separate legal entity. You did not say whether your existing LLC or your potential new one are single member LLCs. If so, you can be a disregarded entity for federal income tax purposes, or you can elect to be taxed as a corporation (most likely an S corp). Electing S corp status or not is a complex question that must be addressed by a qualified CPA or tax attorney. A multiple member LLC is taxed as a partnership by default, but can also elect corporation tax treatment.
Another consideration for single member LLCs (as opposed to those with multiple members) is that they may not offer effective protection of the assets (including the inventory) owned by the company, in the event of a claim against the sole member. See, for example, www.linkedin.com/company/lawyers-company-service-ltd-/ ... Recent Updates. If set up and run correctly, however, the LLC offers protection of the owner's assets from judgments against the LLC, in much the same way as a corporation.
Finally, echoing some of the other comments, I would strongly advise against setting up the LLC yourself. I have never seen a DIY LLC that was done correctly, and you can find similar comments from business lawyers on the web.
Good luck with your business expansion!See question
RCW 23B.16.020 says that stockholders have the right to inspect and copy records of the company and lists a bunch of records. The cap table is not specifically listed. Is it considered one of the records of the company and do shareholders have the...
By "cap table" I assume you mean a capitalization table listing each class of security of the corporation and, for each such class, the number of shares authorized and outstanding, as well as the book value of the shares. For some purposes, the amount of long term debt is included in a cap table. The market value of the outstanding stock, however, would not necessarily be included, and often is difficult to determine in the case of a non-public corporation.
To my knowledge, a cap table is not a record required to be maintained by the corporation and, therefore, would not have to be produced upon shareholder request. Having said that, the company balance sheet (per RCW 23B.16.200) is such a record. Most if not all of the information typically contained in a cap table might be derived from the balance sheet if it is prepared according to GAAP accounting.
Also, if you have not already done so, you could request a copy of a cap table if one exists, or at least a listing of the information you would need for your purposes. Of course, if you are not a shareholder, the company might be hesitant to provide that.
The information you mentioned by reference to the Delaware statute might or might not be contained in shareholder meeting minutes or consents, as well as excerpts of directors' meetings, which are obtainable under the Act. Even so, you would have to determine which minutes and/or consents to request.
I doubt that an option holder would have similar rights, but that could be researched by your attorney.See question
If I use my home address to register LLC in WA, does my house count as corporate asset instead of personal asset? Or in other words, is it possible that I may lose my house if my corporate get sued and lost the case?
Hello - Yes, the previous two answers are correct. In fact, it is quite common for persons forming LLCs to use their home address as the registered office and/or principal business address.
So your home should not be considered an asset of the LLC unless you were to deed it over to the LLC. In any event, your home (principal residence) is exempt from many judgments by virtue of the 'homestead exemption' in Washington.
For your other personal assets, they generally would not be available to satisfy a judgment against the LLC, IF the LLC is formed and operated correctly. Many people do not take the proper steps in the process of organizing their LLC, which sometimes leaves their personal assets exposed to judgments against the LLC. This is called 'piercing the corporate (here, LLC) veil.'
So it would be a good idea to make sure the LLC is properly documented – preferably with an operating agreement – and is properly funded and operated in the future.See question
I'm curious to if I really need a lawyer to set this up. Filling out the forms with the state is easy. However, the thing I am concerned about is the operation agreement. Is there anything I should be aware of, especially for a single-member LLC?
Having done LLC work now for over 20 years, I have to agree with the other answers, and I will go a bit further. In my experience and you can find similar comments from attorneys by searching the web, persons who do this themselves virtually always make mistakes. Some mistakes may be harmless, while others may cause trouble later on. The cost to repair some mistakes can be many times the fees of setting up the LLC correctly in the first place.
The online, 50-state incorporation services are not much better (except for those few that are run by attorneys and focus on a specific state).
As one of the other responders mentioned, the cost of using a qualified attorney may be less than you think - it is possible to do a basic single-member LLC for under $500.
As also mentioned, we may be guilty of "protecting our turf" here, but we are all sincere about trying to save folks from headaches and expense later on.
Best of luck, whichever path you decide to take.See question
I just started a single-member LLC for a clothing line, but I get advice from 1-2 people as far as the graphics and the make of the clothing is concerned. Can I add them without having them sign contracts or make any decisions? If so, how would I ...
I agree with the useful points raised by Mr. Nguyen. Your question seemed to be directed in part to the ability to add a person as a member and/or manager of the LLC.
I am wondering whether you have an operating agreement for your LLC. (Actually, most of the experts urge LLC owners to have an operating agreement even for a single member LLC.) If you have an operating agreement, you can amend that agreement to add a member. If the LLC was formed as a MEMBER-managed LLC, you would have to also amend the certificate of formation (the original filing you made with the Secretary of State) if the person is going to be a manager.
Beyond these mechanical considerations, there are other questions to be asked, including whether you and these persons actually want to be "partners," as opposed to them serving as advisers, as hinted at by your question. Without making them members or managers, you can also have a 'board of advisers' and these persons would have only those powers and duties you provide in your operating agreement (yet another reason that you really need an operating agreement!).
Note that if you give these folks an equity stake in the business by making them members, and they have no management powers in the LLC, that raises several other possible issues, including the securities laws.
You probably have guessed by now that this is not a DIY project, so I really urge you to take this up with an attorney who is well versed in LLC matters.
Good luck!See question
Hi I live in WA state but I am about to buy a rental property in OK state. I wanted to setup an LLC for liability protection. I was wondering what is the recommended state to establish the LLC in. If I set it up in WA state since I live ...
Owning and maintaining a rental property in OK might constitute transacting business in OK. There does not appear to be a specific exception, but this should be determined by an attorney. The answer may or may not be entirely clear, depending upon the case law in OK.
So if you set up a Washington LLC to hold the property, you may be required to register as a foreign LLC in OK. Either way, you will be subject to OK income and, of course, property tax. If you decide to set up the LLC in OK, you should consult an OK attorney to review all of the considerations involved.
The last aspect to consider is the liability protection aspect. As correctly observed in the previous answer, an LLC properly organized and operated should offer the same liability protection for your personal assets, whether it is formed in WA or OK. But if you are planning to be the sole member of the LLC, then the assets of the LLC - here, the rental property - may be at some risk with respect to any personal creditor of yours who might want to take control of the LLC assets to satisfy a debt or judgment. Many state laws are unclear on this, including WA. I do not know offhand what the status is in OK regarding single-member LLCs. This is yet another reason to consult an attorney at the outset.
Good luck with this project!See question
The business will be in the technical consulting arena. To start, there will be 3 of us total; myself, my wife, and my business partner. Due to potential blowback from my current employer, I am trying to remain silent although this is my idea. My ...
Yes, your question raises some issues that most definitely should be addressed through legal consultation. Most of the technical consulting types of businesses that I have helped set up have used LLCs as their legal entity. But this does need to be evaluated between you and your partners and the attorney.
Properly documenting the ins and outs of your desired business arrangement will be a critical piece of the puzzle.
Good luck with this project!See question