Should I use a Series LLC, Multiple LLCs, or an Umbrella LLC?

By IncNow | Published July 11, 2022

Serial entrepreneurs often explore multiple opportunities simultaneously. To start a new line of business, you may not need a whole new LLC. You can use your current LLC and put various lines of business under one umbrella. Using one LLC for multiple business lines comes with several variables and really is not a one-size-fits-all solution for all entrepreneurs but has its advantages. This practice is often referred to as an Umbrella LLC structure and when making the decision as to whether you need multiple entities or one, consider the following:

Umbrella LLC Advantages:

  • The business entity is already incorporated;
  • Lower overhead costs (one annual fee instead of multiple);
  • Less oversight is required to keep assets separate since they all are comingled in the same company;
  • Multiple “incubators” of business lines can accelerate innovation, experimentation, and growth through diversification;
  • Better suited for activities that are low risk and well insured.

Umbrella LLC Disadvantages:

  • Mixing business lines equates to cross-collateralizing liabilities;
  • Having all eggs in one basket means you must watch it carefully;
  • One bad apple can rot all apples;
  • Often requires the multiple Trade Name filings to open new bank accounts (AKA DBAs “Doing Business As” fictitious name filings).

umbrellaShould I Form an Umbrella LLC?

Balancing the needs of your bottom line with protecting your individual company assets really comes down to personal risk tolerance and a cost-benefit analysis. Instead of generating multiple lines of business under one LLC, many business owners prefer to have separate LLCs for each line of business. Separate LLCs provide for a much cleaner break between your individual lines of business. Therefore, this clustering strategy gives you a stronger wall against potential creditors preventing one creditor from accessing the assets of other unrelated companies. Instead, the creditor of one LLC can only access the assets of the one company that is in question.

While having multiple LLCs comes with additional overhead costs (such as the Annual franchise tax fees to the state for each LLC), its benefits often outweigh the higher costs since you are able to align your assets with your individual LLCs and have stronger protections. It is also easier to spin-off or sell a business with separate records, held in its own entity.

If you remain strongly inclined to keep a single LLC for multiple lines of business, you may consider the Delaware Series LLC to allow for firewalls of asset protection within one business entity. The series LLC is a hybrid approach using only one juridical entity, but establishing multiple, even unlimited protected series. While the asset protection shield between these protected series is not as predictable as separate LLC’s, the cost savings are significant. Therefore, the series LLC is often an idea worth considering for low-risk, well-insured assets, like residential rental units. Series LLCs can even be used by serial entrepreneurs who wants to incubate many business ideas then spin-off successful ones into free standing businesses later.  Whether you decide to form one LLC, multiple LLCs, or a Series LLC, your registered agent can help you get started.

When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go