How Families Can Invest Together With an LLC

Pooling Money and Investments to Build Family Wealth

Siblings talking to attorney as they form an Family Investing LLC
••• H-Gall/E+/Getty Images

One of the best uses of a limited liability company (LLC) is to use it as a vehicle for families to pool their money together for investing. The benefits of a family pooling their money through a limited liability company come mostly from the power of an LLC operating agreement. The family LLC can invest in stocks, bonds, and real estate; or use their pooled resources for mutual funds and start-up businesses.

LLC Operating Agreement

An LLC operating agreement can be written with any number of provisions. For example, the operating agreement could forbid individual family members from selling their shares of the limited liability company without the permission of the other members.

This not only forces them to remain invested in the LLC but allows everyone else to not worry about suddenly finding out there is a stranger who has a say in their business.

The operating agreement could also require individual family members to make regular contributions of cash or other assets, such as having each grandchild contribute $50 per month into the LLC. Another provision of an LLC operating agreement could limit investments to certain types of assets, such as stocks with dividend yields over 5%, or rental properties in a certain zip code. You could even require the LLC only to build car washes in certain states.

Structure and Control of Family LLCs

A family may form an LLC and elect the parents or grandparents as the managers, giving them authority over day-to-day decisions. The other family members (children, cousins, siblings, grandchildren) own membership interests in the LLC. These can be from their own savings, where they buy their own investment in the firm or given as gifts from the older family members, who want to pass money on to the next generation.

If your goal is to have the family work as an integrated unit, you can have your LLC operating agreement written so that all investment decisions must be approved by every single shareholder or a certain percentage of the shareholders. That way, you can create a culture of collaboration.

You may also want to also give consideration to forming a Delaware LLC or a Nevada LLC. These states may offer advantages to some family groups. However, they may not be best suited for all groups.

Walton Enterprises as an Example

One of the most famous family LLCs is Walton Enterprises LLC, which is the vehicle through which the members of Sam Walton’s family own their shares of Wal-Mart Stores, Inc. In effect, Wal-Mart is controlled by Walton Enterprises LLC, which is controlled by the Walton family.

Each Christmas, the family meets at Helen Walton’s home, and the managers of Wal-Mart make presentations to the LLC members. The members decide whether to pay dividends, reinvest in other operations such as the Arvest Bank, and listen to a host of other options.

It has been reported that the family LLC won’t make decisions unless everyone is in agreement, explaining how Wal-Mart has experienced almost half a century of consistent control, culture, and growth.

Growing Your Family Investment LLC

Although you and your family may not have over $100 billion to put into your LLC like the Waltons, it is important to remember that they started with almost nothing and built it themselves from a tiny store in Arkansas. Disciplined investing over time can lead to great results, especially when protected by a family culture that values building wealth together.

Another famous family LLC is Cascade Investment LLC, the private holding company of Bill Gates. Cascade, which was funded by the systematic sale of Microsoft shares over many decades, now owns everything from luxury hotels to car dealerships, and railroad stakes to restaurants.