How Families Can Invest Together With an LLC

Pooling Money and Investments to Build Family Wealth

Walton Enterprises LLC is a famous example of a family limited liability company where money is pooled to hold investments. In the case of Walton Enterprises LLC, the investments include a regional bank, Arvest, and roughly 40% of the shares of Wal-Mart.
Walton Enterprises LLC is a famous example of a family limited liability company where money is pooled to hold investments. In the case of Walton Enterprises LLC, the investments include a regional bank, Arvest, and roughly 40% of the shares of Wal-Mart. Joe Raedle / Staff / Getty Images

One of the best uses of a limited liability company is as a vehicle for families to pool their money together to invest alongside one another. The benefits of a family pooling their money through a limited liability company to invest in everything from stocks, bonds, and real estate to mutual funds and start-up businesses come mostly from the power of an LLC operating agreement.

An LLC operating agreement can be written with all kinds 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 all 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 shareholder they don’t like that now 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 to only build car washes in certain states.

Samples of Family LLC Structures for Pooled Investments

Here are just a handful of the many potential arrangements a family could have when structuring an LLC to serve as a pooled investment vehicle:

  • Parent or Grandparent Controlled LLCs
    In this case, a family forms an LLC and elects the parents or grandparents as the managers, giving them all 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.

  • Member Controlled LLC
    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.

One of the most famous family limited liability companies 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, or a whole 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.

Although you and your family may not have $100+ billion to put into your limited liability company like the Waltons, it is important to remember that they started out with almost nothing, too, and built it from scratch 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.

More Information about Limited Liability Companies or LLCs

For more information, read our New Investor's Guide to Limited Liability Companies or LLCs. You may also want to give special consideration to forming a Delaware LLC or a Nevada LLC.