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.
I want to purchase a building in our community to start a custom shirt and novelty shop for growing tourism in our community. The building already has 2 apartments in the 2nd story and I want to put a woodworking hobby shop in the back of the building (for my husband to run). This business will allow people to build their home projects in the shop, where they would have access to all necessary tools & store their projects until they are completes. There is also an established dog grooming shop renting space on the side of the building. I am wondering would be the best way to set up the businesses. should the each business have its own LLC, do I put the apartments under one of the businesses or can I put it all under one LLC along with the lease of the grooming business.
Hi, Christine:
For decisions like this, I would highly recommend consulting with a tax advisor and separately with a legal advisor. There are a lot of variables going into this decision, and it is not one that “free” advice online is going to be beneficial. You want your advisors to ask you a lot of questions regarding short and long-term goals and plans you have, as well as to review your current financial situation.
Remember that if you put everything in one entity, whether it is an LLC, corporation or partnership, everything under that one umbrella is at risk if something happens to just one part of your business. You want proper legal protection.
Likewise, I can tell you that a one-size-fits-all solution for tax protection doesn’t give you optimal results, either.
As with anything related to business and good results, be prepared to make an investment in your future and don’t assume the cheapest solution will save you the most money!
I have an LLC. My current LLC’s name represents only one trade (painting). I want to provide General Construction Services but certain customers are not convinced since the name of the LLC only mentions the painting. How do I go about adding the General Construction Trade for the current LLC? I already have an EIN, general liability insurance, and worker’s comp insurance for the current LLC.
Bernardo:
An LLC is a legal entity. But you can have more than one name associated with your single entity, if you want.
Let’s say your LLC is called “ABC, LLC”. You could have a fictitious name (or assumed name) associated with ABC, LLC called “Da Vinci Painting Co.”. If you advertise for Da Vinci, all money goes to the legal entity called ABC, LLC.
Now you want to add plumbing, so you can create another fictitious name, say “Leonardo Plumbing Co.”. Again, all the money goes to ABC, LLC, but everybody thinks of Leonardo as a plumber not as a painter.
Hi, I have a dba for my freelance graphic design business in San Diego, California. I want to start a printable designs virtual shop (downloads only). What I am wondering about is how I should legally set them up: simply get another dba since I want the shop to be a separate brand, or can I run it within the original dba, OR should I structure them both together to have an LLC with a dba under it?
Then, I am wondering if I need another Business Tax Certificate for the virtual shop? Thanks, in advance, for your time.
Gwendolyn:
You can do whatever you want! If you want a separate brand, you likely want to differentiate it all the way down to the name, so a new assumed name would probably be a good idea. But legally speaking, you are not limited in what business activities you conduct under a single assumed name (or d/b/a).
Whether or not you need a new Business Tax Certificate is a local issue and since I do not know where you are operating, I am unable to answer that part of your question.
Hi- I have established an LLC for a business that has not been implemented to date (although it is still a potential business venture that I may pursue in the future, so I would like to keep the LLC). In the meantime, I have started pursuing a completely unrelated venture, which I would like to start as a DBA under my original LLC. My question is specific to my state – in SC, DBAs are not filed with the Secretary of State, which is where the LLC is filed. How do I connect the DBA to my LLC to ensure that my DBA is covered under my original LLC?
Hi Ana:
If you have an LLC “on the shelf” and you want to use it for your new business activity, you will be effectively making the entire LLC “active”. Assumed Names are the same as “Doing Business As” name, “d/b/a” name or “Fictitious name”.
The Secretary of State of SC DOES registered assumed names as “Fictitious Names”, but typically only for foreign corporations or partnerships.
You can register your assumed name of your LLC in your home county with the County Clerk.
Hi there,
I have a Tech Web Design Development, Architecture Design Branding and Marketing company. I have three other brand businesses that the business treats like separate clients.
To all the services we offer, I carry it out on my other busineses but as if they were clients of the Tech design company.
Is this legal?
I do not let the staff know they are my companies, I just give them the projects and make them fill out Timesheets. They all have job references however
Is this legal?
A staff found out and words like “fraud and misrepresentation” were banded about.
I wonder what the big deal is and whether I am legally bound to make the staff know I own these other companies? The staff in question was very outraged about it.
Many thanks,
Evo:
While we are unable to provide legal advice on this site, in general, you are ALWAYS able to do business with other companies that you own or manage unless there is some contractual limitation you have. If you are the 100% owner of all the companies, then there can be no fraud just by doing business with each other. (You cannot defraud yourself!)
Assuming you are keeping honest records in all of the companies and not trying to defraud some third party or potential investor or the government with transactions that have no purpose other than to defraud, then the act of selling from one of your businesses to another is likely not limited by any statute. If you don’t break a law, then, by definition, it is not illegal.
If the purpose of the intercompany transactions is to move money from one entity to the other without a legitimate business transaction or purpose, then the employees may have a right to be concerned that something fishy is going on. The appearance of something “fishy” doesn’t always mean that something IS illegal.
Run your business as though the IRS is watching everything. That way, if they ARE watching or auditing, you shouldn’t have a concern.
Thank you Randall.
Just to reassure you, I am not at all engaged in money laundering.
I do take steps to reference everything according to project for auditing purposes.
Thank you again.
Best
Hi,
I am a realtor and I am thinking of opening a travel agency. I would like to group these two businesses under the same umbrella. For example: Awesome Living (Real Estate) and Awesome Travel. Can this be done under one LLC?
Candace:
A single legal entity (such as a corporation or LLC) can conduct ANY legal business activities under one entity. You can sell goldfish and houses from one LLC. You can even run a roller-skating rink out of the same entity.
Now, whether that is wise or not from a business protection standpoint, is something you need to decide. The PURPOSE of an LLC is NOT to have a nice official-sounding name. It’s purpose is to provide LEGAL protection. In other words, how do you protect yourself if you are sued!
So, if you are comfortable with the risk of being sued selling defective goldfish and you understand that if someone sued you and won a judgment, they could get your goldfish business AND your real estate business assets because they are in the same LLC. If these two activities were separate LLCs, a plaintiff could NOT get the assets from the second LLC if there is no common business activity between the two LLCs.
If I were to create multiple LLCs for separate companies could I use the same phone number and email address without any issues?
Jon:
Yes you can use one phone and email for multiple businesses. But, your customer may be confused when you answer the phone as “ABC LLC” and the caller was looking for “XYZ LLC”
What if I mumbled each company name together and when I felt like a response was coming I’d quickly emphasize the company name? A great way to save a few bucks?
Jon:
That’s a business decision you can make.
You could do it. But should you?
I recently sold my franchise business.
I opened a umbrella company (registered as S-corp in state of Oregon) under which I bought this franchise.
I have no other business running at the moment.
When can I close / dissolve the Umbrella company ?
I want to avoid paying the yearly business registration fees and other fees to City of Portland and State of Oregon as there is no business running at the moment.
Do I have to keep the Umbrella company open until 2019’s tax (federal and state tax) has been filed next year or I can close the company now?
Hello, N:
Your entity can be closed at ANY time. You need to file for dissolution with your secretary of state’s office. For Oregon, you can find out more here: https://sos.oregon.gov/business/Pages/close-a-business.aspx
Your tax returns will reflect a “short-year” (i.e. Jan 1 – Sept 5 if you closed today). Any annual fees would be due; usually most states do not pro-rate the fees for partial years, but you would not be liable behind the current year if you dissolve your entity now.
I had an existing brick & mortar business that was an S-Corp – that I disabled/liquidated. I’m considering reopening under the same name, but will likely use an LLC for a resale certificate. In addition, I’ve been in marketing/business development for over 20 years, and have begun an online consulting business (at the moment, just under my personal sole proprietorship, but as things grow, it makes sense to LLC it) – I’m wondering if it makes sense to keep them separate or combine them.
I’m more interested in protecting my assets overall, and there *IS* a possibility that I would allow licensing for the brick & mortar in order to grow it later on… but I’m stumped as to whether I should umbrella them or keep them separate.
Audrey:
An LLC provides legal protection only for a business. An LLC is not recognized by the IRS, so your LLC must either select a structure for taxation or tax protection, or it must use its default option (single-member LLC is an ignored entity and is treated as a sole proprietorship for tax; multi-member LLC is a partnership by default).
It is strictly a business decision on your part whether you want multiple LLCs or corporations to protect your business(es). Any business can, by its charter, do any type of legal business activity, including multiple activities–related to each other or not. For example, a single LLC could sell knitting supplies and repair tires. But for legal protection, keep in mind that any activity under the same umbrella LLC as another activity is at risk together.
I recommend consulting with both an attorney (for legal protection issues) and with a tax consultant (for tax protection) when setting up your organization(s).
I have a friend who is wanting to open a sports complex and I want to open a gym. Can we do this in the same building with 2 different LLC names?
Carol:
A building does not a business make. Imagine an office building down the street. They rent to dozens of unrelated businesses. Each could be an LLC or corporation or partnership. They have nothing in common with each other except their building address.
So, yes, you could have 2 or 200 businesses in the same building. Even if they share the same physical space.
Can I market multiple registered businesses under a new corporation? The businesses include 2 tax exempt nonprofits, a travel agency, notary public. Right now independent marketing is a challenge.
Hi Melanie,
Generally speaking, if you want to take a group of businesses and market them under a single brand, you may do so by forming a corporation as you suggest.
That said, because two of the entities you’d like to be part of the single brand is a non-profit, forming a corporation to own the non-profit is problematic.
Non-profits are not owned by anyone or a business entity, unless the business entity is also a non-profit entity.
An alternative to forming a corporation that would own all of or part of your various businesses would be for form a business entity that develops and licenses the marketing/branding to the various businesses. This requires the development of licensing agreements.
Hope this helps a bit Melanie!
All the best…
I currently have a clothing business which I run online. This young lady asked me to partner with her on a rental place so that we both could open up a storefront. She has her own name for her business. How can we run two businesses out of the same building or will we have to rename the business all together?
Hi LaVonda,
There is not requirement for you to rename the business if you and your friend choose to operate your independent businesses from the same brick & mortar storefront.
That said, you will need to find a Landlord who will permit it and to obtain general liability insurance too. Those two steps may be a challenge.
All the best to you…
Hello, I have an LLC, S-corp for a construction company. I would like to also operate a residential/commercial home inspection section, and a home appraisal section of my company. I would like to have all three business under the LLC umbrella. How do I link the three?
Hi Shanetra,
There are many ways to do this. Here’s another post that may be helpful to you as you consider which is best for your situation.