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 in the state in which you choose.
- 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.
Understand how to structure multiple businesses under one LLC or Corporation that serves as an umbrella.
In part three in this series, you may explore alternatives to using a single business entity with multiple fictitious names (or DBAs).
Holly Magister, CPA, CFP
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.
Latest posts by Holly Magister, CPA, CFP
- How to Prepare for Due Diligence When Selling a Business - February 12, 2019
- DBAs, Trademarks & Other Tools To Help You Grow A Valuable Business - October 30, 2018
- Business Broker Fees and Other Selling a Business Expenses - October 10, 2018
Hi Holly,
I currently am an independent contractor of 16 years within a direct sale business; I take advantage of the full compensation plan as a seller and recruiter. 3 years ago, we moved to a new state and my husband is getting prepared to open a catering business (we did that for several years in the previous state but closed it.)
We have considered forming a family corporation for legacy & tax planning in the past. is it reasonable to establish 1 Family corporation and these businesses have some liability protection underneath that umbrella? Would we need multiple LLCs for each current or future businesses
Hi, Ran across your site web searching for specific answer.
this article (How to Structure Multiple Business’ Under One Roof”) which mostly answered my ??? but still need more specific.
My husband and I have had a small business LLC, file as partnership for several years. Our EIN is for the original business name without a different trade name/DBA. Now, we are going to start doing business under a DBA, which I have registered in our state. (will keep the original partnership name and EIN) Do I need to inform the IRS of the DBA and if so, what IRS form do I use? The only form I have found on the IRS.gov is SS4 which does not seem to fit our situation. many thanks if you can clarify this for me.
Hi PJ,
Your LLC filed for the fictitious name so it could begin to market or use a trade name which differs from its official, legal name. If this is the case, then you do not need to inform the IRS about the fictitious name (DBA) or file anything separately for tax purposes.
When you file the LLC’s federal tax partnership return, you will include all income, expenses, assets and liabilities associated with the DBA with the LLC’s financial information.
Hope this helps PJ…
thank you for your prompt response that was really helpful
Glad to help you!
Hi Holly. Finding your blog so resourceful! My family operates a sole proprietorship and pays employees on its payroll. Now, we have transitioned to becoming an LLC with a new EIN and Workforce commission number but learned we’d have to totally replace multiple business accounts (bank, insurance, payroll accountant, etc) using a new EIN. An IRS agent explained today that we can continue using the sole proprietorship for administrative and payroll operations while servicing clients as an LLC entity, using same name + “LLC” applied to that entity. What I’m wondering about now is income source for the sole proprietorship entity if we continue operating it for accounts payables and payroll. Receiving client payments through the LLC, how can we set up the 2 entities in a way by which the sole proprietorship can receive revenue from the LLC?
Hi Yvonne,
Glad the site is helpful to you!
Let’s start from the sole proprietorship you/your family has been operating…
As a sole proprietorship, an EIN was filed and you’ve been using this to file all taxes and to account for all payroll-related matters. Your business, as a sole proprietorship, has no personal liability protection whatsoever. This means the person in your family who filed for the EIN and operated the business in the past has personal liability for everything that happens in the business.
It’s great that you’ve decided to form an LLC and move the assets and liabilities of the sole proprietorship to this business entity. This will offer you/your family certain liability protections.
So, with all that said I respectfully disagree with the IRS Agent advice to continue using the sole proprietorship’s EIN. I contend it’s not a good idea to keep paying your employees under the sole proprietorship’s name and/or EIN. If something goes wrong with an employee, such as a tragic accident, their attorney will be suing the operating company and individual who has the sole proprietorship! I think that’s what you are trying to avoid, right?
What may seem painful now, setting up and using your LLC’s new EIN for everything related to your business and employees, will pale in comparison to a lawsuit against the owner of the sole proprietorship business.
Your question about moving money between the two businesses checking accounts is valid, however doing so won’t be necessary if the LLC is truly operating as its own separate legal business entity.
I’ve linked out to a few other posts which may be helpful to you.
All the best…
Hello Holly,
I own and run a staffing agency that specializes in the apartment industry hire in the state of Texas, we assist the industry in finding their maintenance and administration personnel. It is structured as an LLC.
I’m looking to Branch out into another industry like construction or hospitality etc.
my question is: should I branch out under the same LLC, liability insurance and workers comp that I am operating under or what will you suggest would be the correct way to do it for liability protection and from the legal point of view etc.
Hi Juan,
I am sorry for my delay response… took a few days off here!
If you are going to operate the new lines of business, you could simply create a fictitious name (or DBA) for the new lines, keep separate books and records, and operate all three under the same business entity — your existing LLC. Doing this means you’d only need to file one tax return and you’d still be keeping the records separate for financial analysis purposes — or if you’d like to sell one of the lines of business separately in the future.
In this scenario, you should carefully determine if you need additional coverage for the different types of business risks your business would be encountering.
Worker’s comp will need to be dealt with according to the actual type of work each employee in your business is performing. Again, it’s a risks assessment here.
On the other hand, if you want to separate the liabilities between each line of business, then forming a separate business entity for the two new businesses may be the way to go. Truly, there is not a ‘correct’ way to do this… it’s a matter of assessing your risk tolerance and willingness to keep separate books and records.
I am not an attorney and I do recommend you consider consulting one licensed in your state for assistance Juan.
If you’d like to speak with an attorney, here’s where you may request one.
Hope this helps a bit Juan…
Hi Holly,
I would like to register an LLC but I would like To use 3 different names for each product I’m offering. One product is an alcoholic beverage, the others will be baked good and the third would be fresh foods such as salsa etc. Should I create/register one LLC let’s say Lettuce, LLC and then under that umbrella for the baked goods I could have a DBA called The Cookie and then the fresh foods under Salsa. Does that make any sense? Or should I set it up individually?
Hi Lauren,
It is possible to form only one LLC and then file for fictitious names for each of your product lines.
Doing so means your LLC owns all of the brands you are developing so be certain you’ve got the proper permits, licensing, insurance coverage, etc. for each product. Alcohol production and sales certainly carries a very different amount of risk than your other two products. In any case, when producing or selling items that are consumed, you will have risks!
Setting up a separate LLC for each product line may insulate the risks associated with each business/product from the others. You should discuss this with your Attorney.
There are other matters to consider and so this post may be helpful to you.
All the best…
Hello- My boyfriend has an established farm business as an LLC . How can I do business under his LLC as a DBA, since it is on his farm, to where we can have separate accounts and file taxes separately? Or, would I need to start my own LLC?
Hi Leslie,
If you want to file your income taxes for your new business, you will need to either form your own business entity or operate your business as a sole proprietor.
If your boyfriend’s LLC file for a DBA or fictitious name for your new business, the new business would be part of his LLC. It doesn’t sound as if that’s what you desire to have.
All the best…
Hi Holly,
I have one LLC, with partner ship in which I am soon to take back as a sole owner, as the original partner is being bought out.( We live to far away for him to be inside the business growth)
So next step is to keep same Principle name of business but DBA based on town or location which will have different partners with my self.
Again principle (LOGO) name is same..From an exit strategy how should I set up individual contracts with said partners for their individual location in so that I could sale as whole or separate my partnership portion and maybe both shares if each would like to, but again some may not want to sale.
Thank You ,
Don
Hi Don,
It sounds to me that you originally formed an LLC, had two members and was treating the LLC for tax purposes as a partnership.
If this is the case and you’re buying out your other member, you will soon have an LLC with one member.
If you want to bring in new members into your existing LLC for new locations, the new members will be owning part of your existing LLC. You can’t carve up the LLC with DBAs and share ownership with a DBA. The link to another post on this topic may help you a bit.
If you truly want each new location to be owned in part by you (or your existing LLC) and your new members, then you will need to form a separate, legal business entity for each new location.
From an exit strategy perspective, doing what you’ve proposed with fictitious names (or DBAs) will not work.
You should consult with an attorney as you buy out your current partner and set up the new structure to ensure this all works as you intend it to. Here’s where you may request further assistance.
All the best to you Don…
I own a S corporation (steel railings etc) Im buying, breeding and racing thoroughbred race horses and paying for them through DMB to help get JHB off the ground. Can I create a DBA (JHB Racing) and just keep my steel business and horse trading separated under same entity, or would it be better to borrow money from DMB and pay it back as JHB becomes solvent? And can I write off any losses of DMB if doing business as DBA
Hi John,
It may be possible to file for a fictitious name (DBA) for your racing business. That said, carefully consider the liability exposure each line of business may present to the other if both businesses are being operated under your existing business!
Additionally, your existing business may not be set up to include horse racing under its Bylaws. Please discuss this with your Attorney.
You may also find it difficult to obtain insurance for the new line of business under your existing business. Your Insurance agent should be able to address this matter with you.
When you do move money between the two businesses, if they are separated, you should always document the transaction as a loan.
And, last but not least, if you choose to operate your new business as a sole proprietorship by forming a DBA under your individual name, then any tax losses would be applied to your personal income tax return. The IRS will want you to be operating the horse racing business as a business and not as a hobby or they will deny the tax losses. So be careful there too!
All the best…
Hello! Run a small shop that has a low point in the year. Want to fill out my time and figured since I already need a 2nd car I’d get one that qualifies for Uber and drive that during the slow months to fill out a work day. I see that Uber will 1099 same way that Paypal and Shopify 1099 me. Can I just mark the second car as business use only and keep all my activity under a single LLC and thus EIN? So essentially my sole owned LLC would have an online sales division and ride sharing income division? I understand it potentially opens up liability, but can I do this and have separate branches in my sole owned LLC? Thanks for your help in advance!
Hi Shawn,
I’m sorry, I truly don’t know whether Uber or any of the other ride-sharing companies require its drivers to have a business entity or not.
Also not certain if they do require a business entity to be in place if they’d allow the business entity to have other lines of income as you’ve described.
I recommend exploring this with the ride-sharing company before you proceed. And your attorney as well.
All the best..
Hello Holley, I have an Autobody paint shop, (sole proprietor) and was wondering if I can sell t-shirts under the same business name or do I have to make a separate entity? Thanks so much for time with us, God bless you
Hi Wayne,
If you are a sole proprietor, you do not have a separate legal business entity. Instead, you are most likely operating your business under a fictitious name or DBA.
As such, you may have file for an Employer Identification Number (or an EIN) to file your taxes or pay employees.
If you want to operate another business as a sole proprietor, you should consider filing for another fictitious name (DBA) unless you truly want to form a separate business entity.
If you choose to file for the DBA for the new business, then you’d file those income taxes on a separate Schedule C on your personal tax return.
Hope this helps you a bit…
I have two businesses both are LLC’s and each provides a different service. One business is a sole proprietorship the other is a partnership. The business that is a partnership does not bring in enough funds to pay the bills so I as well as the other partner transfer funds from our sole proprietorships to the partnership to pay those bills. We do not loan these funds to the business so how should we handle this on our books both individually and on the partnership?
Hi Krista,
It sounds to me as if you have two LLCs, one is treated for tax purposes as a partnership and the other is a single member LLC (aka a SMLLC) which means its income and expenses are reported on a Schedule C.
If this is the case, then when your SMLLC transfers or contributes money to the LLC which is being treated as a partnership, the money is a contribution of capital to the partnership. Such deposits into the checking account would be recorded as an increase in the partner’s capital account.
On the individual partner’s side, these ‘transfers’ are an additional contribution to the partnership which increases the individual partner’s tax basis.
Does this make sense?
That makes sense but on the transfer from the individual side how is it recorded? Still as a contribution? I know that it would be a contribution on the partnerships books but would it still hit the contributed capital account on the SMLLC’s books?
You are correct. If the individual owners of the SMLLC contribute cash to their LLCs, their respective capital accounts would be increased (or credited).