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 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 Pay Yourself as a Business Owner - November 6, 2019
- How to Overcome Customer Concentration Objection When Selling a Business - May 22, 2019
- Understanding the Business Buyer Types When Selling Your Business - April 12, 2019
A business partner and I are looking to acquire a pharmacy. My business partner already owns other pharmacies under an S-Corp. He has favorable contracts with wholesalers, which can be extended to the new pharmacy if the new pharmacy is under his S-Corp. Can the new pharmacy be purchased under his existing S-Corp, but structured so I retain 50% shares of only the new pharmacy (and not the S-Corp)?
Sam:
I understand there may be economic advantages to using the existing corporation, but you cannot use the existing entity to carve out a portion of the business for a 50/50 ownership. S-Corporations have a single type of stock and if the partner has a 100% ownership in other operating businesses, I would not expect him to want to share those other businesses with you.
I would recommend that you consider either negotiating directly with the suppliers indicating that you have common ownership with other retail units or that you come up with a multi-tiered ownership structure, meaning multiple entities are used. This is a good conversation with your attorney and tax strategist!
Hi. I have an existing bicycle shop which is an S-Corp, I am purchasing another bicycle shop, which is also an S-Corp. Would it be wise to have a parent company of the and would that be another S-Corp, or should I just start the parent S-Corp and then convert the two bike shops to DBAs or something else. I like the tax savings but I also want protection so if someone sues one store they can’t go after the other store. I want to keep the financials separate and will market the two shops separately.
Thanks
Dan:
Any entity has the dual purpose of tax protection and legal protection. How you set up these entities in relation to each other is strictly a business decision. There are no hard-and-fast rules. I would recommend speaking to an attorney regarding the best legal protection and to your CPA or a tax strategist (like us) regarding tax protection. Since I have no details in this forum of your specific circumstances, I am unable to give you specific advice here because this is a more complex question than at the surface.
Hello,
Happy New Year, I owned an C-Corp and an LLC( Holding company for my C-Corp).I want to make sure that I am not complicating myself. Myself and my company is doing business with federal government and that being said, I have to make sure that I am dotting my “i’s” and crossing my “T’s”.
I previously sold 49 % of my C-Corp to a large company, ( I am certified by SBA, with set asides, WOSB SDB Enterprise). To make the story short the affiliations or partnership did not work out, So I decided to buy it back and my LLC( holding company/real estate-property owner) bought the 49% share of stock.
Now I am back as the 100% principal/owner of both C-Corp and LLC company.
My C-Corp has 3 dba: (multiple function company: Safety & Industrial, maintenance repair & operation service, and just recently got the Advance Technology sales and service).
My question from the Tax stand point, the C-corp. having the multiple dba in which I don’t get much higher salary to reduce my tax liability, is paying the dividends and rent to the LLC which at the end still pass through the income to me, Can LLC ( which I consider the umbrella of the Corp) open up another dba? and how is that affecting me on my personal taxes.
Am I doing the right thing to protect me and my assets?
Dee:
This structure you describe is inefficient on multiple fronts. Why would you need to have an LLC hold a 100% owned C-Corporation? You get NO tax advantages and you get, pretty much, duplicated legal protection. Complexity for the sake of complexity.
Get thee to an attorney and tax strategist to find a more efficient way of doing business, fast!
Good Morning,
Question. I have a Wyoming based LLC and was looking to create another LLC that will do business in California, with the Wyoming LLC acting as the parent LLC, however, I don’t want to create another EIN. Since the LLC’S are all for the same business purposes (real estate), do I need to have a separate EIN? Or can I use the current EIN that I have for my parent LLC? Would I have to create new EIN’S for every LLC I create under my parent LLC even if it’s the same type of business? Thank You!
Hi Trene,
Unfortunately, every business entity you form will be required to have its own EIN.
All the best…
I have an LLC and I also work as an independent insurance agent. Can I be a sole proprietor as an agent and get another EIN number? Can some one have two EIN’s for two separate entities?
Brigitte:
Yes, you can have two (or any number) of entities operating simultaneously. If you are operating as a sole proprietor and you have no employees, you don’t need an EIN as you may use your Social Security Number as your tax identification number.
But, if you have any employees or another business purpose, you can apply for a new EIN.
Hello— I am one of five therapists (occupational and speech) who are all separate LLC entities. For marketing purposes we would like to assign one name for our clinic (ie. Joe Blow Therapy Group). What does this entail? I know we need a business license but am not yet aware of what else needs to happen from a legal/tax standpoint.
Crystal:
Very often medical groups and law practices are organized similarly in that each licensed practitioner creates a single-member LLC, but then organize the LLCs as a unitary entity.
You can create a legal entity (corporation, partnership, LLC) which is owned by single-member LLC’s or you can form a joint venture (not a legal separate entity). The new entity or the JV could market under an Assumed Name (a d/b/a).
Since you are licensed professionals, I do recommend that you speak with an attorney as to how best to organize the central organization for legal protection. And, you may wish to also speak with a tax strategist for how to use the structure to gain a tax advantage, too.
Dear Holly,
I am a healthcare provider, and have had a business for last 20 years that is a S-Corp. I have had several other Corp’s that I have allow to dissolve. No one else has these names, and I want to place them all under the one S-Corp. I have a DBA I do business under in the S-Corp.
Do I need to form an “umbrella” corp to house them all, or can I do the DBA’s for the old dissolved corp and additional new entities. These are all various medical entities.
Hi Marla,
Firstly, it’s important to understand that a DBA (or fictitious name) is not a business entity. Instead, it is permission granted to an individual or legal entity to use a name which differs from its official, legal name.
If you desire to market various medical services (or products) under the names which were associated with your former corporations and those corporations have been dissolved, the S corporation you currently own should be able to apply for those fictitious names.
If the fictitious names are awarded to your S corporation, then all business conducted under those trade names will be considered part of your S corporation from a legal and tax perspective. This fact is important to understand and consider before you file for the DBAs.
Does this clarify things for you?