In this article we’re going to talk about a very important BollitProof rule, so listen up. This rule is one asset, one LLC.
Now, what exactly does this mean, and why would you do this?
First, it means that we suggest you set up an LLC for each individual asset you own. It can be anything from real estate to a network marketing or direct sales business.
Let’s look at an example and say you have two revenue streams, one is a network marketing business and another income stream is rental property.
If you didn’t know the importance of having these setup as two separate LLCs or you didn’t want to spend the money paying a registered agent to set one up for you, you likely have these two revenue streams grouped together.
We call this approach “Pennywise Pound Foolish,” and you’ll understand quickly why we use this term.
Going back to that example, let’s say someone slipped and fell at your rental property and decided to sue your LLC.
In this case, if the two streams of income (rental property and your network marketing business) are in the same LLC, do you think they would just be suing the rental property?
Well if you’re a part of the BollitProof community, you probably know the answer to this.
The answer is: NO!
Especially in states where they don’t do a great job protecting your LLC, that person would be suing your entire LLC. This means they would be suing not only the rental property business, but also your network marketing business…because they can.
And why can they? Because you didn’t follow the One Asset, One LLC philosophy.
Had you simply taken the time and pay the small amount of money it costs to separate those two businesses into two separate LLCs, “One asset, One LLC”, they would only be able to pursue the single asset held in the LLC they were suing.
Here’s another reason you’d want to separate: Some tax strategies are affected by having more than one LLC. In fact, some must be in other entities.
Take our Section 105 plan for our “kids on payroll” strategy, as an example. This tactic works best if you have a disregarded entity because you can avoid payroll tax on what your business is paying them.
However, in order to avoid the additional 15.3% in an S Corp, you cannot have a disregarded entity or at least they can’t be both. You need two separate entities.
For instance, by running our operating company through the S Corporation to avoid self-employment tax, the money that comes over into our management company is disregarded.
This is the BollitProof way we use to fund the kids compensation and doing it this way won’t have any tax liability because it’s all paid out through payroll. At the end of the day, it means there’s no 15.3% tax to deal with but it requires having two LLCs.
So if you haven’t guessed it already, the big takeaway from this lesson: One asset, one LLC.
Multiple LLCs are crucial to our BollitProof strategies. Protect yourself, protect your income.