Separate LLC or Multiple LLCs?

There are several reasons that a business owner might consider whether a separate LLC or multiple LLCs for their assets. These reasons include using a sale-leaseback to raise additional capital, transferring assets by gifting them to family members, sharing the ownership with employees, or hearing about it from friends.

Sale-leasebacks occur when the business owner sets up a new LLC , sells the asset in an arms length transaction to the LLC and then enters into a lease for this property from the LLC. It is important to understand that these must be arms-length transactions. Business owners should also consider whether the lease is an operating lease or a capital lease, and whether he/she is giving up his/her primary asset.

If a business owner wants to transfer ownership of his/her assets to other family members or employees, he/she needs to structure this transaction like a gift-leaseback. The main considerations here are to be sure that the lease is at fair market value and this strategy is best with businesses that are “asset rich”. Doing this can help to reduce the size of the business owner’s taxable estate and shift income or cash flow to family members or employees.

Whichever purpose the business owner is setting up an entity for, he/she should be sure to retain an experienced attorney to accurately draw up documents for each transaction.

See Jerry Love, How to Determine If A Separate LLC is Right For Your Assets, CPA Magazine (2011). 

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.