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Looking to set up 2nd LLC as Operating Company for my 1st LLC, which is a Production Company. Should Op Comp be set up under parent, or on it's own?

I am looking to set up a 2nd LLC as an Operating Company for my Production Company, which itself is a single member LLC in Pennsylvania.

In terms structuring the business, I could either personally file the Operating Company under my own name/address (like I did for the 1st LLC), - or, could have the 1st LLC (Holding company) file the paper work, and set it up as a parent company.

It sounds to me like setting it up as a completely separate entity (not going the parent rout), then leasing the Holding Companies assets (Equipment/Intellectual Property) would limit the liability completely when I'm on the road making productions. But maybe I'm missing something?

What are the impactions of setting it up in these two scenarios, both tax and liability wise? What's sounds like a better way to structure the LLC's for my needs? Answers and following conversations much appreciated.

Michael Gilmour answered

From my experience it's better to setup the IP company as a completely separate entity. There can then be a contractual relationship between the OP company and the IP company.

This will assist in protecting the IP in the case of any legal action against the OP company. For instance, if the OP company is sued due to "bad advice" then the IP is not part of the law suit. The challenge then is to ensure that the directors of the both companies are different.....as any law suits of this nature often end up throwing the directors in as well!

This structure gives you the greatest amount of flexibility in your business in the event of a sale. Quite often a purchaser wants the IP but not any of the potential liabilities (or skeletons) of the OP company. You can sell the IP company off as a clean entity and gracefully close down the OP company.

I wish you all the best in the venture!

Edmund John answered

One thing you could research is other jurisdictions to set up a single member LLC. If you pick a state that specifically has charging order protection for LLC's (i.e. Wyoming affords this protection whereas Florida does not). you would probably be better protected liability-wise. Happy to have a call to discuss specifics.