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.
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Hi, I have an existing retail imported store that is a partnership with my sister , but me and my husband is planning to collaborate with the existing business and this will be between me and him.\
How can we operate to be in one establishment but different owner?.
what do we register??
Hi Joanne,
If you and your husband intend to own and operate the new business and not include your sister, a new business entity will need to be formed.
You may think about choosing a trade name for your new business with your husband which is similar to the trade name of the business you own with your sister. That may help if you want to be known in the marketplace as an affiliated business, albeit legally the two businesses would be distinct and separate.
All the best…
Hello Holly,
My question is similar to others but I want to make sure I’m clear on what is best for our situation. My husband and I have owned a rental property for a few years and believe we should create an LLC to provide protection to our personal assets. I am currently starting a home staging business that would be under my name only. I was looking to create an LLC for this business as well. We live in Illinois. What is the best way to set up these entities? Thanks
Hi Jane,
Rental property held by a business entity is always a good idea as it offers your family certain additional liability protections.
Make certain you keep the business checking account for the new entity separate from your personal checking accounts. Also change your property insurance policies to reflect the new name (your LLC).
As for your new home staging business, the type of business you set up and how you elect taxation for this business depends on many factors unique to your and your husband. I am sorry I am not able to truly tell you how to best set up these entities. An Attorney and your CPA should be consulted.
If you need assistance sourcing legal or tax advice, send in your inquiry here.
All the best to you Jane…
Hi excellent article, I’m glad I was able to stumble across this very informative information.
I hope you can shine some light with my situation. I recently registered as a sole proprietor to start up my own film production company that will do services for clients such as video editing, filming, voice over, etc.
However, I plan to open up an LLC later down the road that will do somewhat similar services as the sole proprietorship, but with more emphasis on film distribution and dealing with bigger projects.
Because the name of the sole proprietor will be different from the LLC, would it be wise to separate the two, on items such as business cards, Facebook business pages, movie credits, etc? Even though their interchangeable in a sense?
Or is there a way to kill two birds with one stone and promote/market them both, intertwined somehow?
Perhaps I’m making this more difficult than it should be, but any recommendations/tips would be greatly appreciated.
Thanks in advance.
Hi Ray,
Glad you found our site too! Welcome.
As I a understand your plans, you are the center of the two proposed businesses for now. In the future, your intention is to widen your market to a different/larger audience and desire to have a different name and create a separate business entity. I think this is wise.
When you do start to market the new business as an LLC, I believe keeping the trade names separate for banking, tax reporting, contracts, website, facebook pages, etc. is always best. Having one business card for yourself that covers both names isn’t a bad idea though if you choose to keep both businesses in the future.
All the best…
Hi,
And thanks for your insight and your reply.
An idea just came to mind, and I was thinking when I start to market the new business as an LCC, can I then make the sole proprietorship a subsidiary of the LLC? If so, what’s the process for that ?
And then maybe on business cards and what not promote the company by, for example,
Birds eye view productions (A Mystic Films Company) something to that effect.
Or how would it be legally/properly worded for an LLC?
That way I’m promoting one company while acknowledging the other, if that makes sense. Kind of how Johnson to Johnson does for their products and subsidiaries:
Neutrogena facial wash, (A Johnson to Johnson company)
What your thoughts and recommendations?
Thanks again. Truly appreciate it.
Hi Ray,
If you have a sole proprietorship that you want to make part of an LLC, you could either
1. form another LLC and have the existing LLC be the owner of the newly-formed LLC; or
2. contribute the assets and liabilities associated with the sole proprietorship to the LLC.
There is not such thing as a subsidiary when you are dealing with a sole proprietorship. Here’s another post that may help you distinguish the differences.
In small businesses, it’s unusual to see products, subsidiaries, holding companies being co-marketed unless the branding is very strong and widely recognized.
That said, if you have the legal rights to use the trade names, there’s no reason why you can’t do so if you’d like to.
Hope this helps…
I have a S corp for a computer repair/consulting business ABC computers Inc for the past 10 years …I have the opportunity to start a used car dealer …can I run my used car dealer under ABC computers Inc if I use DBA king auto sales ? for both business i will be ordering parts, do repairs, provide services and sales
Hi John,
As long as your Corporation’s Bylaws describe the purpose in broad terms, it may be possible to include your new business in your existing business.
That said, you should consider it may not be permitted under your state licensing regulations for car dealerships. Each state has its own rules and regulations.
It also may be difficult to obtain general liability insurance and worker’s compensation coverage for employees when the two lines of business differ so greatly.
Hope this helps a bit. All the best John…