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.
Latest posts by Holly Magister, CPA, CFP
- DBAs, Trademarks & Other Tools To Help You Grow A Valuable Business - October 30, 2018
- Business Broker Fees and Other Selling a Business Expenses - October 10, 2018
- Business Entity Definition & Overview - September 6, 2018
Hello Holly,
My family is considering moving forward with a conglomerate where the parent company would hold ownership of smaller companies under it’s umbrella. We have been discussing the topic of filing as an S Corp for the parent company as we intend to remain privately held and for tax purposes.
The question we have is whether or not the smaller companies will need to be filed as a C Corp? or can they be filed as S Corps as well? Thank you for the help in advance!
Hi Bill,
The smaller companies you intend to form may be an LLC, C Corp, Partnership or if 100% of the stock is owned by the parent S Corp, an S Corp.
If you choose to have the smaller companies elect Sub chapter S status, then the companies would be considered Qualified Sub Chapter S Subsidiaries or QSSS. When filing the annual federal tax returns, only one tax return in filed for all of the companies. Again, the QSSS’s must be owned 100% by the ‘parent’ S Corp!
Hope this helps…
Holly,
Thank you very much for the helpful reply!
Bill
Hi Holly,
I have a very profitable S Corp that was established in 2000 and is focused on providing IT consultants to various Automotive customers. Now I am in the process of developing a dating app and I am not sure how I should structure this entity. I want to minimize legal risks in case there are any law suits filed related to this dating app. The S Corp has its own liability insurance. Should I simply create a DBA for the dating app? In that case I would need to update my S Corp liability insurance policy. Should I create an LLC that is owned by the S Corp and the new LLC has its own liability insurance policy but there is only one EIN to deal with between the S Corp and the LLC and the books are kept completely separate? Can you please advise on the best approach to take for the dating app with the least amount of risk to the S Corp and personal assets?
Hi Mario,
Congrats on your profitable business! Music to my ears…
If you are concerned about protecting your existing (and profitable business), which in my opinion you should be, forming a separate business entity for your new business is wise.
And if there is no compelling reason to co-mingle the ownership by having the S Corp owning part of or all of the new business entity, avoid this as well.
Then you simply have two businesses with no ties to each other. This provides you and your profitable business the most protection possible.
Of course you need to regard and operate the two businesses separately too!
All the best…
Hello, hope you are doing great. My questions is in regards to LLC, I’ve added a Real Estate Team under it ex: X, LLC dba as AB, Team. and now I would like to add DBA: zs management (to do work for other realtors as transaction coordinator). So the first question, can we use a separate EIN for zs management? or should we file all taxes under X, LLC (mother company).
Or will we need to file for a totally separate LLC? I figured since the work is related to Real Estate it wouldn’t be a problem to have it as DBA, but just not 100% sure. We do plan to have an assistant under zs management, so we would have to pay her as independent contractor.
Thank you I hope my question is clear
Hi Romina,
If you’re creating a fictitious name (or DBA) to a business entity, such as your LLC, it’s part of the LLC and so you’d use the LLC’s Employer Identification Number (EIN) for the DBA’s banking and tax purposes.
Your decision whether to file a separate business entity for your new business, as opposed to creating a fictitious name for the new line of business, really depends on whether you want the new line of business to be separate in all legal ways and for tax filing purposes. You should consider the risks associated with all of the lines of business before you make a decision.
All the best…
my business partner and I are looking to form a holdings company which will own multiple LLCs (“restaurant franchise LLC”, “distribution products LLC”, “real estate LLC”, etc). Is it possible to form this holding company as an LLC and will it be better for us to form this holding company in the state of Delaware (vs our home state of Washington). Also, will it be better (or does it matter) if the owned companies are registered in different states?
Hi Tam,
It’s very common for business owners to use Limited Liability Companies to hold multiple business entities, including real estate.
That said, where to form these business entities depends on what you are trying to achieve and the specific state’s business entities laws.
You will need to consult with an Attorney about your specific situation in order to determine what is best for your situation.
We are happy to help you find an experience Attorney to help you here.
All the best…
Hi Holly,
First off, thank you so much for all the information you share on this website (especially all of the responses you provide to the comments).
I’ve been scouring the website for a couple of hours now and I think I have most of my answers, but I just need a bit of confirmation and further clarification.
Here’s the scenario:
ABC, LLC – Single-member disregarded entity (Arizona).
DEF, LLC – Single-member disregarded entity (Arizona).
ABC, LLC, itself, conducts no business whatsoever. It’s SOLE purpose/function is to be the single owner of “child” LLCs.
DEF, LLC, a “child” LLC of ABC, LLC (wholly owned), is the actual business. It is the one providing services (e.g., administrative, website design, social media management, etc.). Since DEF, LLC is going to be the operating business, it will have its own EIN, business license, and checking account.
My questions are:
1) Since ABC, LLC is a holding company that isn’t conducting any business on its own, would taxes be filed on my Schedule C as just DEF, LLC? Or would it be filed under ABC, LLC, since it’s technically the owner and everything gets passed up to the parent LLC (and ultimately to me, since we’re talking about disregarded entity LLCs)?
2) If I personally needed to loan DEF, LLC money to cover expenses until it starts generating revenue, would that loan need to go through ABC, LLC first, or directly to DEF, LLC?
3) I’ve seen a lot of questions about having a parent LLC and one or more DBAs beneath it. You’ve expressed concerns about that structure due to DBAs not legally being considered separate business entities (they’re essentially just “also known as” designations); you’ve stated that if one DBA is sued, that opens the other DBAs and the parent LLC to liability since they’re technically the same business. What about the parent-child LLC structure scenario above? Since each child is an LLC (a separate, legally recognized business entity), does that insulate itself from other child LLCs and the parent LLC?
Thanks in advance for your assistance!
Hi Jack,
Glad to assist you…
If ABC, LLC is considered a Holding Company LLC, you would file your ABC, LLC on a Schedule C if it is solely owned by you (single-member) and you do not elect any other type of federal tax treatment.
If your operating LLC (DEF,LLC) takes on a loan, the loan would be on its balance sheet and not on the ABC, LLC’s balance sheet.
As for the type of multiple LLC structure you are considering, it’s important to first determine whether the specific structure is recognized in your state and to consider whether such structure makes good sense if the business(es) may be doing business in more than one state.
I’ve linked above to another post on this subject to assist you further.
And the liability question always has to do with the specific state’s laws. You should consult with an Attorney in the state you will be operating and/or forming the business entity to be certain the liability protection you desire will be achieved.
All the best…
If you have an LLC with one name, then you open a separate business with another name, but is a DBA, do you file sales tax, wage withholdings and 941’s under the LLC, or under the DBA?
I’m assuming that the DBA can have the same EIN as the LLC, and also the sames state sales tax number as the LLC.
Also, would it be wise to have separate accounting books, one for the LLC and then one for the DBA?
Hi Sheila,
Whether you file the taxes for your new (DBA) business under your LLC’s EIN or under its own DBA depends on how you filed for the fictitious name.
If the fictitious name was filed on your (individual) behalf, then the fictitious name (DBA) belongs to you and is not part of your LLC. If that’s the case, you would prepare a Schedule C for your new business and need a separate EIN for employment, sales taxes, etc. Essentially, you’d be operating as a sole proprietor for this new business.
On the other hand, if the fictitious name was filed on behalf of your existing LLC, then the new business is part of the LLC and there would be no need to obtain another EIN. Everything related to the new business operating under the DBA would be part of the LLC.
Regardless of how you filed for the fictitious name (or DBA) in the first place, I always recommend keeping separate bank accounts and accounting records for multiple businesses. It proves to be very helpful if and when you decide to sell one or both businesses in the future.
Does this make sense to you Sheila?
Lori, I own as s-Corp, 50% of an LLC and (as of right now) a sole proprietorship. What is the best way to put all 3 businesses under me umbrella company? Is it possible to use my already existing s-Corp as the umbrella?
Thanks!
Hi Pat,
To answer your question, it’s necessary to understand why you want to have an umbrella company.
As for your sole-proprietorship, this is not a separate business entity which can not be owned by another party. It belongs to you.
There are ways to move the sole-proprietorship to another holding company or business. That said, understanding your goal for the umbrella company would be helpful.
I would like to write off income and expenses against all 3 of the businesses. For instance if one business receives most of the income, I’d like to write off expenses of the other businesses against that income.
Hi Patti,
If you choose to form an umbrella or holding company, the income and losses would be able to be combined for your LLC and S Corp as they are both pass-through entities. Essentially the income and losses of each company would pass through to the holding company and the holding company would file its own tax return.
To do this, the holding company would have to be the owners of the LLC and S Corp and an S Corp has certain restrictions with respect to ownership. Here’s another post that may be able to help you with this.
If you want the S Corp to be the holding company for all of your business interests, your half of the LLC would have to be transferred from you to the S Corp and you’d have to contribute the assets and liabilities related to your sole proprietorship to your S Corp.
You should discuss this with your Attorney and CPA before doing so as it would involve a number of steps and possible legal and tax consequences.
All the best…
i guess, i have what may be hypothetical/ethical questions (or not?). i am a sole member llc. i just bought (in my own name…not the llc name) property that already has a sole proprietor (dba–registered) business on it as well as 3 existing residential rentals by way of quit claim deed. the real party in interest to the rentals would be the pevious owner/the dba? and now me/the dba? i know, as successor i am bound by those existing leases, but because the dba still exists and operated would that really make it the leaseholder even though i am now just the property owner? i nor my llc was not a party to any of their leases, and they are oral, so i am not sure as to their terms. During the first 3 months of my ownership, i allowed the previous owner (you know… family) to continue to operate that business under their dba while they made all those bills out to me, and they kept the rent from the rentals. then, i transfered/sold just the property to my llc (not the dba or the rentals) by way of warranty deed and allowed the same ‘operation’ to go on for 10 more months. did i violate any law(s) by allowing that dba, which was not registered to me or my llc, to keep operating while my llc owned that property? or was it separate? is my llç/the dba now the leaseholder? where my llc is now bound to the existing leases? even though it was by warranty deed? i want to evict now and am unsure under which name? Any advice would be great!
Hi Ed,
Unfortunately, we are not able to address your situation.
Your situation is one where it’s necessary for you to consult with an Attorney.
We’re pleased to introduce you to one here.
Hello,wondering if started a live bait shop. Could I have some improvement business, an catering business all under the same inc. business umbrella…
Hi Julius,
It may be possible to form one business entity, such as a corporation, to operate multiple lines of business.
Doing so does introduce the risk that all of the assets, income and liabilities are co-mingled under a single business entity.
This means if one of the lines of business is sued, such as your catering operation, then the income and assets in the corporation may be in jeopardy. That may have a negative impact on your bait shop and improvement business operations.
Hope that helps a bit…
WHAT IF I WANT TO START 2 SEPARATE BUSINESSES? ONE DEALING IN FOOD AND ONE IN NATURAL BODY PRODUCTS. NOT UNDER THE SAME UMBRELLA THOUGH. I FILED FOR TH FOOD BUSINESS ALREADY. DO I JUST START ANOTHER LLC AND FILE THEM BOTH ON MY TAXES? I DONT EXPECT TO MAKE ANY MONEY THIS YEAR, JUST SPENDING.
Hi Courtney,
It sounds to me that you’ve filed for a single-member LLC for the food business.
If you form another business entity and register it as another single-member LLC when you file your personal tax returns, you’d prepare a Schedule C for each business– one for the food business and another for the natural body products business.
Wishing you great success in your businesses Courtney…
I have a non profit prison ministry that I would like to put other ministries underneath. Most are for profit, but the core reason for being in business is to minister to others. Could this be done in Texas?
Hi Chan,
I am not able to address how Texas handles a non-profit owning a for-profit business entity. I am sorry. Typically, each state has its own rules and regulations regarding how non-profit entities report its income and expenses. Some states have additional reporting requirements, such as the need for audited financial statements or separate filing fees.
Setting up a non-profit (under Internal Revenue code section 501 (c)) for federal tax purposes where it owns multiple for-profit and non-profits is possible. That said, such a set up would mean that any profit generated by one of your for-profit business operations, if owned by your non-profit, would solely benefit its parent non-profit.
Hope this helps you a bit…
Hello, my question is: my business run services of coating applications and one guy from orlando makes the same service, so we want to be partners, but holding our companies LLC’S, we want to know how can we create a sub company, who will offer both services of the actual companies but not affected our company like taxes or partnerships, we want to offer our product application trought one new sub company. This is because we dont wat to combine actual responsibilities of the actual llc´s, just the new company share responsibilities, please help and advise me?
Hello Mario,
There are a couple questions to consider and clarify regarding the services you both offer and what responsibilities you are looking to share under a new arrangement. You mention that you both provide the same service. It sounds like you’re looking to combing your marketing efforts and share the workload, correct? This may be something that’s accomplished by a simple JV (joint venture) agreement you can have an attorney draft for you that describes what the responsibilities each of you would have. The JV agreement would outline how the partnership works, who has what obligations, how the work load/orders are routed and how profits are distributed. This method would be the easiest to dissolve in the future and would provide less in the way of a transferable asset in and of itself.
Another option, slightly more complicated but offers additional protections may be to create a new entity such as a Multi Member LLC that each of your existing LLC’s have interest in. This way you keep each of your existing activities segregated yet allows you to work together in the new capacity under one operating agreement. This will create a “marriage” if you will and will require legal and tax framework that you’re looking to avoid but may also provide you both with the clearest picture of how the partnership is to operate and ultimately creates an asset that may be sold or passed on to your estates if you choose. Hope this helps!
Hey Mario, Andre Hampton is absolutely spot-on with his suggestions. As an contracts attorney, I would like to just add a couple considerations. First, you can form another entity as a C Corp, not just an LLC, and each existing company can own shares wich would provide some tax advantages, potentially and make selling that business easier -this is Exit Promise! I would speak with counsel before pulling the trigger because that joint venture agreement should also include some non-compete language and protect trade secrets… I mean, you might have some Secret Sauce that you don’t necessarily want your competitor/partner to divulge.
My question concerns insurance. There are 3 companies. All LLC’s/S Corps
Company A – Sole owner (General contractor)
Companies B (millwork shop) & C (real estate Holdings Co. housing the millwork shop) owned 50/50 by myself and owner of Company A.
We have all three under one umbrella policy for liability. Is this a risk for me if Company A has a lawsuit or is each company liable separately? The insurance agent said the policies should be split up because if company A has a lawsuit all three would companies and each of us personally could be liable. The lawyer says it is fine.
Hi Lori,
There are two parts to your situation —
First, if each company is operating as a business entity, certain types of liabilities may be separate from other business entity’s lawsuits and liabilities and its owners. As an owner of any business entity, not all liabilities are protected. Unpaid payroll taxes and owners’ negligence operating the business are two examples of liabilities that a business owner will not be able to escape from responsibility.
As for the liability insurance policy you’ve purchased for the collective companies, the language in the insurance contract will dictate whether the scenario you’ve described would result in each company and its owners having liability exposure.
One other note… it seems odd to me that you would be able to purchase a single liability policy for these three companies because their respective risks differ greatly. And the companies have different ownership structures.
I hope this clarifies things a bit for you Lori…
Thank you for the reply! I am told by the insurance agent that this is structured in a way that is appropriate for all 3 entities. My main concern is the risk to me from Company A, which I am not an owner or member.
If this company were to have a claim would I be exempt from liability? I see your answer indicates that it depends on the language in the policy. The lawyer said it is fine even though he did not read the policy.
Lori
Good morning Lori,
I don’t blame you for wanting to understand your potential liability if your business are sharing insurance coverage with another business which you do not have ownership!
It seems to me that your Attorney should at least review the insurance contract to address your question. I don’t know how he or she would be able to advise you unless he read the insurance contract.
Let us know how this turns out for you as it may be helpful to others…