When you first registered your business as an LLC, you might not have foreseen the way it would grow, and branching out in new directions might lead you to consider an LLC division or creating a new separate legal entity for your expanded endeavors.
There are pros and cons to each approach, but before you file articles of organization for each facet of your business, consider the advantages of creating divisions within your original LLC.
Some reasons to divide your Limited Liability Company (LLC) include:
- Creating a more efficient and effective business structure
- Tracking the profitability of each separate LLC division
- Launching a new product line or service offering
- To focus on regional differences or target markets
Creating Divisions Within an LLC
While there may be some new filings required for an LLC business division, it is generally less complex than incorporating a new company or setting up another limited liability company. You may need to update your LLC operating agreement to list new members and define your new lines of business.
Depending on how much is changing, the resulting LLC filings might be strictly for informational purposes, or they might outline a complex restructuring plan for the division of the company. Dividing your existing LLC allows you to keep separate accounting records to track each division’s growth while maintaining and paying taxes on one legal business entity.
The Advantages of Dividing Your LLC
As your small business grows, creating separate divisions within it can help you stay organized and efficient, while holding members of the LLC accountable for their individual responsibilities. Some reasons to make these structure changes include:
- A more cost-effective way to add a new product line, service, or regional office than to create a new and separate business.
- The ability to operate divisions under a new trade name, which may be different from your company name, without setting up a separate business structure.
- Less paperwork on an annual basis, as you will only need to complete business filings for your single business entity, although there will be more supporting documentation for your single tax return.
- An opportunity to test a new business idea within the stable structure of your existing LLC with faster startup and less investment.
- Sharing resources including employees from established company divisions to launch a new product line, expanded service offerings, or a new location.
Some Disadvantages of Dividing Your LLC
There are also some reasons you might choose not to use a divided LLC model to expand your business. You may want to create a separate legal business entity to avoid:
- Sharing liability risks as part of the same company
- Difficulty selling the new product line as its own business or attracting investors
- Inability to transfer a single part of the resulting LLC to separate heirs or beneficiaries
- Combining the assets and liabilities of two or more divisions which can allow losses in one area to eat up the profits in another area
How to Create an LLC Division
- Establish new trade names if needed with a DBA (Doing Business As) filing with your state to link this new trade name to your existing LLC.
- Set up separate accounting systems for new divisions, including separate bank accounts in most cases.
- File for necessary permits and licenses for your new line of products or services as required in your state for certain types of business activities
- Update your LLC operating agreement to reflect the new business structures, DBAs, and new members in charge of divisions, and pay any necessary filing fees for updates
Simplify the Process of Dividing Your LLC
Most states allow you to change your business filings online or by mail, but many business owners find the process of navigating online sites and state portals complex and time-consuming. Another option is to use FastFilings online service to manage your new business filings, updates, and permits in one place for a small additional fee.
FastFilings provides business tax registration services, sales permits, certificates of good standing, and DBA (Doing Business As) filings for small businesses who are looking to establish a new location or division within their limited liability company. Contact us today to get started DBA/FBN assistance to document the growth of your expanding operations.