In part one of this series, we discussed the various options to incorporate multiple businesses while keeping each business as a separate entity. It’s worth noting that having a separate legal business entities can be costly when it’s time to file your taxes as most CPAs charge an additional fee to file each business entity’s tax returns.
Additionally, you may want to develop a line of businesses that are closely related in terms of the products and services offered, the industry, or even its customers. In such a case, it may make good sense to create a single brand that will unify the various business operations. Marketing can be simplified under this type of multiple business structure and the businesses could flourish under a unified brand.
If you find your future plans include the addition of similar lines of business to your existing business (or the business entity you are about to form), there may be a simple way to structure multiple business entities which could reduce tax filing costs and administrative time in the future.
How to Structure Multiple Businesses Under a Single Business Entity
- First determine which type of business entity you’d like to form:
a. Limited Liability Company; or
b. Corporation (an S or C Corporation); or
c. Partnership. - Determine if the business trade name you’d like to use is available in the state in which you choose to form a business entity.
- If it is available, determine if the trade name has been federally trademarked by another party. If so, go back to the drawing board!
- If it is available for your federal trademark registration, consider filing for it after you launch your business.
- Form the business entity you’ve chosen in the state in which you choose. If you choose an LLC, you will need to draft an Operating Agreement. If you choose a Corporation, you will need to file Incorporation documents.
- File all of the necessary start-up documents and public notices with your state and local government (if applicable).
- File for a Federal Employer Identification Number (EIN) for the business entity.
- Make any federal tax elections necessary.
- Under the business entity, apply for a fictitious name for any other lines of business you’d like to operate under the umbrella of the business entity you’ve formed.
Example of Multiple Business Structure Under a Single Business Entity
If you have a business that manufactures shoes in New York called ‘Soho Shoes, Inc.’ and you’d like to offer speaking engagements to shoe designers under the trade name Soho Shoes Speaks and start a blog about the life of a shoe designer at SohoShoesMusings.com, you could hold all these lines of business under one company.
To do so, the incorporated business known as Soho Shoes, Inc. would apply for two fictitious names (or DBAs) — one for Soho Shoes Speaks (for speaking engagements) and another for Soho Shoes Musings (for the blog).
It’s important to note that before your business files for a DBA or Fictitious Name, you should verify that your use of the name does not violate another party’s intellectual property rights. You don’t want to get into trouble and have to start over again after your start marketing your products and services to potential customers.
This multi-business structure example is really one business entity with three different marketing or trade names. So, it’s relatively easy to co-market the related lines of business while minimizing the tax reporting requirements. In my book, this structure saves time and money and that is always good!
What Does Filing a Fictitious Name Mean?
When your LLC, Corporation or Partnership has filed for a fictitious name, the state has given permission to the business to use a trade name for marketing purposes which differs from the business entity’s legal, or official name. It’s really that simple.
The fictitious name certificate does not create a separate business entity so the line of business operating under a DBA is part of the business entity which filed for the DBA.
You will not be able to sell member shares in the LLC, stock in the Corporation, or partnership rights in the Partnership for one of the lines of business which operates under the fictitious name.
And if you choose to sell one of the lines of business operating under the fictitious name, you will have to sell under an asset sale agreement as only part of the business entity will be transferred to the buyer. This can be tricky to do if the accounting books and records for the multiple lines of business have not been kept separately. So, seriously consider keeping separate banking and accounting records for each line of business under this multiple business structure if you think you may sell your business in the future.
In part three in this series, you may explore alternatives to using a single business entity with multiple fictitious names (or DBAs).
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.
- SBA Reopens Economic Injury Disaster Loan Applications - June 19, 2020
- 7 Changes PPP Loan Flexibility Act Offers Business Owners - June 11, 2020
- Who is the Employer in a PEO? - June 3, 2020
My husband and I own a commercial/residential cleaning company general partnership…. I would like to have my 2 children become partners by splitting the business into commercial vs residential.
Not really sure what my question is, but if I create 2 entities (one residential and one commercial) under the general partnership and I want my husband and myself to manage/partner the residential entity and my children manage/partner the commercial entity.
With that type of split, who is the partner on the main company, all of us?
Also, would I need 3 checking accounts where both entities feed into the main checking account?
Judy:
Partnership structure may not be the most efficient for you both in terms of legal protection or tax protection.
Without knowing more about what you are trying to accomplish, it’s hard to just take one aspect of your business and force a solution to what can be a more complex problem than you realize.
Would love to be able to help you. It sounds like you are unsure as to why you have these entities and how having the right entities can help you and having the wrong entities and structure can actually cost you a lot of money.
Feel free to give me a call to discuss further.
Judy
It sounds like you want to have multiple partnerships. One to a primary partnership with two subordinate partnerships based on the two separate markets. The partnership agreement would define terms and conditions agreed to by the partners. Such as:
1) Relations among the partners, as partners, and between the partners and the partnership
2) The business of the partnership and how that business is conducted
3) How the agreement is amended
It is within the partnership agreement that you can establish the ownership or management structure. Remember that the partnership business structure does not provide you with the same level of liability protection as an LLC.
How you desire to establish the checking accounts is your choice. Before you finalize the checking accounts, it would be recommended that you consult with your CPA.
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of informational purposes only. It is not a substitute for consulting with your legal or financial advisors to obtain their professional consultation.
How do I name 3 different or more businesses with the same name.
e.g under Makz_hub I have food delivering(M’s cuisine), cloth designing Makz skin care etc. Is there a general name for it on something
Dear Mr. Inyang:
Trademarks are registered by classification so you would simply file each name under the specific classifications you desire to claim. If there arises a question of conflict, you should be able to waive the conflict as the sole owner of each of the businesses. Please understand, is not an opinion as to whether your actual name is eligible for a trademark.
Hi,
I have an LLC in Florida (taxed as S-Corp) that has 3 DBAs. One for a restaurant, one for an online retail store and another one for property management and rental services. The three of them with different bank accounts. My question is what “Business Activity Code” should I use to file taxes to IRS? Always used the one for the restaurant but was wondering if it matter or not to IRS. Thank you !!
Fernando: Use the code the represents the largest revenue portion.
If I may, I would recommend that you consult with a tax advisor or an attorney regarding your use of a single LLC for these wholly unrelated businesses. By having everything under one entity, you are losing some of the protection benefits that you would normally have by using the LLC structure. Do not make the mistake of saving a few dollars at the expense of potentially losing hundreds of thousands dollars in exchange.
Our firm helps business owners maximize their tax savings while maintaining asset protection.
How do I put established individual LLC’s under one main established holding corporation. What forms are required? These LLC’s are in Alaska.
Debra:
You cannot just move LLCs to “be under” another entity. These are not moving parts that are interchangeable or that require “forms” to change.
In order to have an LLC “under” another entity, that top-level entity must OWN the LLCs. So you have to have an ownership change. It’s not that simple.
You also need to consider the tax type of these LLCs. For example, if they are taxed as S-Corps and the holding company is not an S-Corp, this presents specific challenges because it cannot be done.
The current owner (assuming it is you) would need to sell her membership shares to the holding company.
This is a complex situation and I would recommend that you consult with both an attorney and tax advisor before you attempt to do this on your own.
After dealing with certain legal issues, I’ve put my business under a family member’s name. That being said, I can’t say I trust them entirely. Is it possible for my business to be in their name but they/their creditors have no access to the assets of the business? Should I create an LLC instead and create DBAs under there?
Hi Sahar,
If your business is dealing with legal issues, you should consult with an Attorney who can help you.
Here’s where you may request legal assistance.
All the best…
In the holding corporation, does the other businesses have to be related to each other? I have considered each entity as a product line….but that’s also complicated. Each entity has its own state regulations and requirements. I have read that creating 2 separate LLC’s can be beneficial to shield both from the liability of the other. I live in Texas and our LLC fee is $300 + the mandatory filling fee. I’m becoming a roaster and a pommelier. Your thoughts? Thank you for your time.
Hi Alicia,
Yes, a holding company may own unrelated businesses. That said, it’s important to have a good reason to form a holding company. Otherwise, it introduces complication and additional expense.
You are correct, every business entity must comply with its own state regulations, licensing requirements, tax compliance, etc.
And it’s also true that having separate business entities, when you own multiple product lines or businesses, offers its owners certain liability protections. Here’s a series of posts to help you understand this better.
All the best…