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Business Between Two LLCs

Asked by: Brian - 16 September, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 Hi,

I have several questions regarding organizing LLCs.

1. I would like to separate certain aspects of my business into different LLCs doing business with one another. Is this a common practice? Also what would happen if both companies had the same structure of managers and members?

2. I would like to use a mailbox forwarding service as my principle business address, which might not be in the same state that I organize my LLCs. Would this create a nexus in that state and force me to register the company as a foreign entity even though no services are rendered in that state? The same question holds for bank accounts.

Best regards,
Brian
Answered by: Robert Kowalski - 17 September, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/35.jpg-687fc92d5f6c5febcbdccb6895b08b8c Brian,

1. It is actually very common to organize your business using several legal entities. For example, if you run a restaurant that owns the building it occupies you could separate this business using 2 LLCs - one for the restaurant and one as a real estate company that only owns one asset - the building in which the restaurant is located. First LLC will then pay rent to the second LLC.

The reason to do it in this example is to separate the liability of the restaurant business from the actual real estate asset. Since people like to sue restaurants you would want to make sure in case things go bad with the restaurant you at least won't loose the property.

And yes, both LLC can have same owners and managers. They still are separate entities nevertheless.

2. The question of nexus is a tough one. Every state authorities have their own ideas what created nexus in their state and what doesn't. Typically nexus is defined as some definite link, or minimum connection, between the state and the entity it seeks to tax. Normally, sufficient nexus for income tax purposes is established when an entity owns, leases property or performs services in the state, employs personnel in the state, or has capital or property in the state.

Address is a tricky item on the nexus list. If you have a physical address in any state from which you conduct business then obviously you create a nexus in that state, but thats too obvious. What happens if you just keep a mail forwarding address in that state? I would say it depends on the state. If its California chances are they would consider it enough for you to establish a nexus, once and if they discover and make the connection. If its Wyoming I don't think they would. In other words, the worse the state finances are the more desperate they become in finding their prey.

As far as bank accounts go most states don??™t count a bank account as automatically creating nexus. "Most states" is a key word here, see my comments above.

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