Protecting Yourself Through LLCs

posted on 03/10/08 at 10:07:04 pm by Joel Ross

As part of our recent transition from Tourney Logic to Develomatic, LLC, we've learned a few things about how to set up businesses. Some of them are worth sharing!

To start with, let me state that I'm not a lawyer, so if you're in this situation and wondering if this is the right solution for you, I claim no responsibility if you lose your house. Check with your own lawyers first. And remember, I'm in Michigan, so states may vary as well. And it's always possible I'm completely off my rocker to begin with!

Anyway, we recently learned the best way to organize our different entities. We have four major properties that we maintain - Tourney Logic, Tourneytopia,, and Pay It Square. And I guess you could add Develomatic, LLC onto that as well, making five. While some relate, we track each separately and if the opportunity afforded itself, could sell them separately.

There's another side to this as well. In the event that something bad happened, we want the losses to stop at that entity. That is, if one of our entities got sued, we don't want that to have a negative impact on the other entities. Since we track them all independently, we know what kind of revenue or losses each one has.

So how can we accomplish that? Well, each entity is a separate LLC. So for our five entities, we have five LLCs. The LLC is a legal entity and will hold up in court to limit its liability to what it's made, so the losses wouldn't filter up to the rest of the entities and completely wipe them out.

Now, having heard this, my first reaction was "This is a ploy for the accountants get more money!" Five entities means five tax returns right? Well, as it turns out, no. The odd thing about LLCs is that they aren't technically recognized by the federal government - or at least not the IRS. No, to the IRS, the only thing that matters to them is if you have an EIN. If you have an EIN, you file a return. No EIN? No return. Now, that doesn't mean if you make money for an LLC that doesn't have an EIN, it's tax free. You still need at least one EIN. But for us, we can get an EIN for the "holding" LLC (Develomatic) and file a return under one EIN with all of the combined revenue of the separate entities.

Bottom line: Legal protection for each entity, but the tax simplicity of just one entity.

Categories: General, Develomatic