Legal Question in Business Law in Virginia

Re: sole proprietorship under LLC

Yes, certainly, any corporation can operate multiple lines of business, as multiple departments of divisions. It is quite common to account for entirely separate businesses on separate sets of books, and then total these up at the end of the year (or every quarter) to see the total results for the company as a whole. It is done all the time. Also, bear in mind that to preserve the protection of an LLC, you *MUST* keep careful books that are entirely separate from your personal funds. If you want the court to treat your LLC as a separate entity, YOU must treat it as a separate entity in all respects. If you must lend money to, or borrow money from, your LLC, be careful to document it exactly the same as you would with a total stranger.

However, because you have already operated these businesses in your own name as sole proprietorships, you will need to make a paper trail showing a clean break. In effect, your new LLC will need to "buy" your businesses, with all of the necessary paperwork showing that the LLC has purchased ALL aspects of the business. This would include amendments/ modifications to all contracts naming the LLC as the new business in those contracts, instead of your previous businesses. (If you merely "assign" the contract to the LLC, you remain personally liable as well. The other party must sign off on transferring the contract completely). On the other hand, you are in no particular hurry, so as contracts are renewed you can simply shift them over to the LLC, to avoid commercial disruption with your customers or vendors. At some point, you need to send out a letter notifying any vendors or creditors (and customers if you think you might have any liability to customers) that there has been a change.

Again, the reason for having a strong paper trail of this transfer is because you already have a record in the past of running these same businesses in your own name. Therefore, people who might bring a claim against you could say they were legitimately confused (by your actions) as to whom they were dealing with. If you lead them to believe (in past transactions) that they enjoyed your personal liability to answer personally for any debts, and then did NOT know that there was supposedly a change, the court might agree with them that they are NOT bound by the limited liability of the LLC. In order to have limitations on seeking liability, a person or business has to be KNOWINGLY doing business with a limited liability company or corporation, that is they are AGREEING to the limited liability by knowingly doing business that way.

At some point (which is up to you under commercial considerations), you will need to clearly inform people that they are now doing business with the LLC, not with you personally. Only after they are on notice that they are doing business with a LIMITED LIABILITY company will you enjoy limited liability.