I have a Texas LLC that I use for side projects. I'm thinking of buying some equipment and leasing it to another business (also in Texas) that I'm involved with. Is that allowed? The other business is a separate entity. I want to make sure this doesn't pierce the veil or cause tax issues. Anyone done this?
Business Law
Can a Texas LLC own equipment used by another business?
Yes, an LLC can own equipment and lease it to another business. That's a common arrangement. Just keep the contracts and finances separate. No automatic veil piercing if you do it right.
What Biscuit said. But make sure the lease is at fair market value and documented. If the IRS thinks you're shifting profits, they might recharacterize it.
Thanks. I plan to drft a lease agreement. Any gotchas with Texas law specifically? Like franchise tax or property tax?
Texas has no state income tax, so that's simpler. But the equipment might be subject to property tax in the county where it's located. And the LLC might owe franchise tax if it meets the threshold. Check with a CPA.
Also, if you're the owner of both businesses, make sure you're not commingling funds. That's the big veil-piercer. Keep separate bank accounts and books.
And don't forget insurance. The LLC should carry its own liability insurance for the equipment, and the lessee should have coverage too. Otherwise, if someone gets hurt, you could be exposed.
I've done this. It works fine as long as you treat it like a real business. My lawyer said to have a written lease and keep minutes of the LLC meetings. Overkill? Maybe, but it helped me sleep at night.
Appreciate all the advice. One more thing: does the LLC need to be registered as a foreign entity entity if the equipment is used in another state? Probably not for Texas only, but what if the other business operates in Oklahoma?
If the LLC is just owning equipment and leasing it, it might not be 'doing business' in Oklahoma. But check with a lawyer there. Don't rely on forum advice for interstate stuff.