Many small business owners have lots of great ideas that would work for completely different market segments. As a sole proprietor, one might be tempted to enhance liability protection by not only forming a limited liability company (LLC), but forming multiple LLCs, each of which caters to the different market segments. The rationale here could be something like the following: "I can focus more specifically on each customer base with separate businesses, for example by providing a separate customer website for each business. I can also protect my assets better this way, because if I am sued, the limit of my liability should be restricted to this one business, while the other LLCs would survive. Forming a single member LLC is not very expensive, and neither are annual reports, so this should be a great strategy". Now, while this strategy does have its merits, the administrative hassle may be too much of a burden to bear. For example, good practice would be to write an operating agreement for each business and open a separate bank account for each business. All activities should be tracked with documentation, again, separately for each business. In addition, you will have to file a separate annual report for each business, and keep profit and loss statements for each to report to the IRS. Furthermore, deductions must be strictly tracked for each separate business. Is this beginning to sound like a headache yet?
A better strategy to protect your assets and minimize hassle may be to keep all of these ideas within one business and simply purchase liability insurance. Liability insurance is not expensive (about $400 to $500 per year), which is around the same amount in fees you would pay to register 2 or 3 new businesses with a state (depends on the state). If you have multiple ideas for separate segments of the population, you might be better off having a website developed for each major idea instead of forming a separate LLC for each major idea!
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