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.
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- What Happens to PPP Loan When Selling a Business - October 14, 2020
Can you have “partners” in a DBA held by an LLC that elected to file as a Partnership? And will those “partners” in the DBA be partners of my LLC by default?
I am venturing into a new market but I have also caught the interest on a bigger company who is also venturing into the same market and they will like to partner with me so we can do this together. I am yet to register my company before we begin the paper works but I am confused as to what type of business I should register my company under. I am thinking about creating a partnership with a trusted person before partnering with the larger company.
what advice do you have for me?
Do you also think it is safe for me to create a subsidiary company under the main company for the purpose of this partnership?
ASARE:
There are a thousand ways to do business with another entity or person. You can create a new business entity with the partners being individuals. You can create a Joint Venture where you create an operating agreement to share certain business opportunities. You could create a partnership with existing businesses. Basically, you and the other side just need to sit down and determine which is the best way to conquer the market.
Then, sit down with your attorney and tax advisor to determine how this will all play out operationally, legally, and financially.
Your business–Your Rules.
Hello Randell,
Thank you for your early response.
Concerning that, we have decided to merge both companies in an MOU for starters.
Since it is not legally binding, what advice can you give me on how to approach the whole situation for us to form an LLC. Or do you think it should remain as an MOU for a while.
Hello and thank you for this service you provide!
I recently started a music production / publishing SMLLC under a company name but have always conducted freelance / entrepreneur work using my personal name in the same industry. Though I keep separate books and bank accounts, many expenses overlap or are exactly same (I use the same car, home office, attorney, equipment, supplies, etc.) for both. Hoping you can shed some light on if I need to file two schedule C’s or just keep it all on one? If keeping it all on one:
1. Do I continue filling out my 1040 / Schedule C as I always have done in previous years, but just consolidate the income and expenses from both ventures together?
2. On the schedule C, where it says “Business Name”: I’ve always used my full name. Do I also add the LLC name to it also?
If I must file two C’s, which one do I put the shared expenses on?
Thank you so much for your time. I’m very grateful!
Chad:
At the end of the day, it does not matter if you use one Sch C or two. If there are shared expenses, you may split them as you see fit amongst the businesses, as long as you don’t double dip!
Thank you! I’d rather use one Sch C so that’s great to hear. If using one Sch C, am I required to put the LLC company name somewhere in addition to my full name? Will it hurt leaving it out?
There’s a box on the Sch C to indicate your legal business name and EIN. As far as the IRS is concerned, a Single Member LLC is ignored for tax purposes.
Can a Missouri LLC Own a New York LLC that provides mental health counseling services in New York?
Does the Missouri LLC or NY LLC have to apply for a “waiver”in NY for the “corporate practice of prohibitions”
If so which entity applies for the waiver… Missouri LLC???
Is it possible for two people who each own their own LLC as single members and are under the same roof to use the same DBA name? We work together, but have separate clients. However, we’d like to be seen as a united front by just using the one DBA name for signage/marketing purposes. Additionally, we don’t have employees and don’t intend to either. Since we each already have an LLC, we are hoping to keep it simple and continue like this, as opposed to creating a two member partnership LLC, whereby we’d have to dissolve our current LLC we own independently in order to create a new two member one. Thank you, in advance, for you advice.
Michelle:
It is NOT possible for two LLCs to legally have the same DBA or assumed name. An assumed name MUST be unique.
However, you CAN create a new LLC that is owned by both SMLLCs as partners.