Holly also founded ExitPromise.com and so far has answered more than 2,000 questions asked by business owners about growing and selling a business. She also offers consulting services to business owners as they choose their M&A advisors.
- Does the Stage of My Business Matter When It’s Valued? - April 28, 2022
- What the Great Resignation Means to Your Business - April 19, 2022
- What is Exit Planning? - November 22, 2021
Have a Question? Add it to the bottom of this post!
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.
- Check out our Startup Checklist for your new business to make certain you take all of the necessary steps.
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).
Business given to son and daughter under same name but want to have separate book keeping and payroll
Good day,
I was in the process of creating a start up and was offered an opportunity to DBA under an established non-profit 5013c. My question is when you DBA under an already established entity is there an owner listed? What covers me as being the owner of said DBA legally and should I have a contract drawn up to cover myself in the future if I choose to pass the business down or sell?
Hi Daina,
If you file as an individual for a fictitious name (DBA), that tradename belongs to you and only you. Another business entity (for profit or non-profit alike) can never use it even if you want them to.
That’s not the case if your DBA is a fictitious name for a business entity (LLC, Corporation, Partnership).
If the non-profit were to assume the fictitious name of your business entity (again, that’s all they could ever do), then your business entity would be owned by the non-profit — not you. Is that what you want?
It doesn’t sound like it to me based on how you’ve asked the question.
You may want to start with defining what it is they do want with your tradename (DBA). From there, there may be a way to achieve what you and the non-profit wants.
Daina:
I will echo Holly’s comments, but also add that if you start a for-profit business, you definitely don’t want to be under that non-profit or you will both risk losing non-profit status. A non-profit does not mean “not making a profit”. It is a designation for certain entities that have a social benefit as its primary goal and as a result, get preferential tax treatment (like–no taxes on its income). A non-profit will lose that tax treatment if it has for-profit activities either directly or indirectly.
Hi,
My friend and I are opening a two chair salon studio, and we want to work under the same business name. We were planning to each get our own LLC, but realized the DBA’s cannot be the same. We want to work under the same roof, as we both provide the same services, and we want to brand a business together, but don’t necessarily want to join a partnership. How can we work out of the same business name, while having two separate LLCs?
Hello Briela:
I see that you want to be married, but you don’t want the government to know that you are married. And you want your friends to see you are married, but you don’t want anyone not your friend to see that you are married. Do you see the parallel in your business situation?
Fortunately, in business, there are some alternatives. Mind you, not perfect, but some workarounds. One is that you can operate a Joint Venture or JV. A JV aid when two parties agree to work together for a common goal without sharing a legal partnership. Neither party owns the JV but share expenses and results per an agreement. Each party reports and pays tax on their respective income separately. However, if the JV is sued, both parties also must be sued separately.
Another option is a partnership which is a separate legal entity. Instead of you individually being partners, your respective LLCs are partners. You can agree who pays for what and how you split revenue.
In either case, do consult legal and tax advisors to help you avoid all the pitfalls of jumping into business together.
Hi Briela,
You could have one of the LLC’s assume the branding name you both want to use and license the rights to the other party to use the name for marketing purposes only. Think of it as if it were a McDonald’s franchise where all of the McDonalds locations, which are owned by a separate business entity, pays a fee to use the branded McDonalds name.
Alternatively, you could form a third business entity that owns the branded name and each of you would license the right to used the branded name. This option means you’d have three business entities between the two of you.
Hope this helps.
All the best to you and your friend…
This could be more of a business insurance question but lets see what you think. The issue I am running into as a full spectrum Energy company is obtaining a commercial policy that will do both sides of my business, (Oil & Gas & Solar). I have been in the O&G sector for 18yrs so I understand all of that but trying to implement another energy service (Solar) is not an easy task on the Ins. side. So while I continue to figure that out, should I just make a sub off my Corp to obtain a separate policy for each sector of service?
Hi Jesse,
It’s not unusual for insurance carriers to not want to add another line of business (solar energy) to its existing coverage. And that’s because the risks differ.
I recommend you shop the two types of coverage with multiple carriers. There may be a company that covers both risks in one policy. If so, that would permit you to avoid forming another business entity if that’s not what you want to do.
If you do choose to form a subsidiary for the new solar energy business, you will have a separate business entity — which may be helpful — it would separate the assets between the businesses.
All the best…
You are right, unless I want to pay up on the premium to get them to allow for Oil & Gas and Solar all in one. Thank you
Hi. My husband owns a c corporation in construction.
I am newly commissioned as a notary public/ loan signing agent wanting to work under a DBA rather than my name.
Can I form my DBA for notary services under the umbrella of his corporation even though I’m not filed as an owner of the corporation? If so can we form a separate bank account for the notary business?
Also would the notary business be protected under the corporations liability insurance or do I need to get additional insurance for the DBA? Any help would be greatly appreciated!
Hi Mischa,
If your husband’s construction company wants to expand into notary services and its corporation’s bylaws will permit it, then yes. The corporation would file for a fictitious name (DBA) for the notary services. This would mean that your husband’s company is in the notary business — not you. Even if you choose to work as the licensed notary, the construction company would be the notary service.
If that’s what you and your husband agree to do, then it would be able to open a separate bank account for the notary service work with the proper paperwork in hand and your bank’s agreement to do so.
I doubt your existing construction company’s liability insurance policy would typically cover notary services. So if you’d proceed with your plan, you should address this with your insurance carrier. Typically, a notary carries professional liability or errors and omissions insurance coverage.
Hope this helps a bit…
I have several wireless retail companies that were filed separately as a different entity under S corporation.
The Carrier Company (ex: Verizon) wants me to combine those into one existing entity. (Ex: several retails locations under one existing entity)
We can manage the internal accounting and everything.
We are planning to file final tax returns on those retails stores this year and start combine everything in one existing company.
From the Tax return purpose, I know it is possible to file multiple business under one S corporation.
Here is the question: Can I just file the final tax returns on the retails stores and put the total number in one company’s return without electing or reporting anything to IRS? Do I have to list up the address and the statements in 1120S to show that I am starting to filing them altogether? Please advise.
Thank you in advance.
Hi Jessica,
You will need to apply for a QSub election if you want all of your S Corps to be reported in the future on a single S Corp tax return.
There are other requirements related to the ownership structure and timing issues to address as well with a Q Sub. So investigate whether your businesses are eligible before you file your 2021 tax returns for the S corps.
Hope this helps…
We have a Company that is an LLC. We are renting it to a 501(c)7 Social Club. They want to have a separare business for the Pickleball part and one for the indoor fitness part. How would be be able to do this under the non for profit?
Hi Rebecca,
I am assuming you have commercial property you are renting to a non-profit (social club) and you’d like to create two separate businesses that would be owned by the social club. Yes?
If so, you’d form two separate business entities and identify the non-profit corporation as its owner.
Does that make sense?