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Whens it right to do multiple LLCs to protect yourself?

Postby kubrick19 » Fri Sep 03, 2010 10:45 pm

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Hi guys, Im looking to get myself official soon and file the papers for an LLC (which I'm thinking will be the least amount of hassle with maximun protection). My business will be very small at first, just me and a few idle investors. I will be looking to hire some people at some point, either by giving them stake in the company or just a "work for hire" basis. But if I give away stake it may just in the specific project they are working on, this is where Im running into questions over having multiple LLC's.

Since I'm going to be doing a lot of different stuff, a website idea, invention ideas, just stuff to copyright and try and sell, plus even doing some side photography/photoshop stuff which would be nice to do out of a real LLC.

I want to have protection for myself and my endeavors so that if there's a terrible accident on one project that everything else I'm doing isn't ruined.

Does this leave me with no other alternative but to place each thing under a separate LLC? If so at what point?

For instance if I'm doing freelance photography, I could just operate out of my main parent LLC.

Then if I want to license an invention or start a website would I need to create another second and third LLC that are owned by my first LLC?

How would you guys go about dealing with intelectual properties, would the main LLC handle everything until its time to really sell a product and then get another LLC. Or do you want to have another company up front when you started invention planning/prototyping/ testing/marketing?

I didn't think id be asking quite this much and I realize now the obvious that most inventors are working on multiple projects are once and I'm basically just looking to ask how do you guys separate those in a business sense?

I really appreciate any information and/or advice. Thanks.

Re: Whens it right to do multiple LLCs to protect yourself?

Postby JoeWaisman » Sat Sep 04, 2010 9:58 am

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Lots to consider here. A few examples:
1) If you have multiple ideas in one company and you give a portion of your LLC away as payment then those who are paid in stock will own a portion of ALL of the LLC, not just the idea. Of course you could write a contract specifying that they get a percentage of the product sales and no stake in the company.

Here in California it's possible to pay out dividends at rates unequal to an investors stake in a company. If that's the case where you live than this might not be an issue for you.

2) Multiple LLC's increase cost and administrative overhead.

3) Multiple LLC's provide more protection. If for example you unintentionally infringe on someone else's patent with one idea and are making a profit with another...you could potentially lose the LLC that owns both.

4) Branding: In some cases branding is important. From a branding stand point a singular corporation would have the strongest brand IF the product offerings are closely related. The whole would be greater than the sum of the parts.
___________________________________________
"The horse is here to stay but the automobile is only a novelty, a fad."
Fun links:
*http://www.scribd.com/doc/441708/Bad-Predictions-About-Great-Inventions

Re: Whens it right to do multiple LLCs to protect yourself?

Postby kubrick19 » Sat Sep 04, 2010 1:50 pm

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Thanks for the help!

Regarding #3 above, If for example, Kubrick LLC was the main company and it owned Photos LLC, Invention 1 LLC, and Invention 2 LLC. If Invention 1 LLC was infringing on a patent, could you lose the entire Kubrick LLC?

Could I have something like Kubrick Inventions LLC and use that company to develop and hire people for website work etc, and then Im actually making the product itself I create a completely separate and new LLC and transfer the ownership of the intelectual properties over from Kubrick Inventions LLC to the new company?

Does this sound like more work than I need to be doing? Would it be better to just have multiple products under one LLC?

Re: Whens it right to do multiple LLCs to protect yourself?

Postby JoeWaisman » Sun Sep 05, 2010 11:52 pm

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kubrick19 wrote:Regarding #3 above, If for example, Kubrick LLC was the main company and it owned Photos LLC, Invention 1 LLC, and Invention 2 LLC. If Invention 1 LLC was infringing on a patent, could you lose the entire Kubrick LLC?


Fine print: I am not a lawyer. That aside, here's my take on this:

It's ineresting that you should ask about this. I may soon become involved in something structurally very similiar. If the corporations are set up properly, then Kubric should be safe with some exceptions.

The Rich Dad books specify that you should separate assets and associated liability with corporations, but that protection can break down if certain rules are not followed. Some things that can cause this to happen are sharing accounts, having the same board members on each corporation and even poor documentation...there's probably more and
I haven't read the actual rules yet...just lay descriptions in books.


kubrick19 wrote:Does this sound like more work than I need to be doing? Would it be better to just have multiple products under one LLC?


Do you have 500k worth of investment, a team of people who will be working for you within the year and are you the an easy target for lawsuits (frivolous or otherwise)? As investment size, complexity, the number of employees and legal exposure increase the value of creating and maintaining a complex business structure can increase. Value would not increase in every case.
___________________________________________
"The horse is here to stay but the automobile is only a novelty, a fad."
Fun links:
*http://www.scribd.com/doc/441708/Bad-Predictions-About-Great-Inventions

Re: Whens it right to do multiple LLCs to protect yourself?

Postby ATtheLake » Thu Sep 01, 2011 8:05 pm

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Location: Northern Indiana
:D :D :D

I believe Joe said it best here on some parts! expenses of owning a corporation, whether it be S-type, C-type or LLC or other variations can possibly get administratively expensive.( in my state $20 every 2 years maintenance) The cost is say approx. $350-500 to go online and get a company to write the paperwork for one's new business. I believe that makes good common sense when having a serious business plan or even idea... I know to a person without, the money to pay for basically a new company and name to go along with it; that can be taxing... But in the long run, if you geniunely have a real idea or business, I would recommend forming an individual entity for that purpose... Utimitely to separate liability which Joe explained... I personally know a guy that has, um.. lets say a lot of rental houses.. 141 exactly.. Guess? How many corporations he owns? Answer: 141 8)

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