Holly also founded ExitPromise.com and so far has answered more than 2,000 questions asked by business owners about growing and selling a business. She also offers consulting services to business owners as they choose their M&A advisors.
- Does the Stage of My Business Matter When It’s Valued? - April 28, 2022
- What the Great Resignation Means to Your Business - April 19, 2022
- What is Exit Planning? - November 22, 2021
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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.
- Check out our Startup Checklist for your new business to make certain you take all of the necessary steps.
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).
Im the sole proprietor of a mind and body spa offering massage therapy, life coaching, skin therapy and yoga and would like to open a massage school under the same roof. What would be best?
Hi Michelle,
Your existing offerings are all related to wellness offerings to consumers and share similar risks.
Your intended new venture in education, although related to your existing business, is a different animal with a different set of risks and likely licensing requirements.
For this reason, I recommend exploring how you would obtain insurance for these two lines of business and if it’s necessary by licensing regulations to form a separate business entity for the school.
Your business attorney should be able to assist you with this as well.
All the best…
Hello, my wife is a massage therapist and wanting to open her own business with two of her co-workers. They will each be independent contractors but are wanting to operate under one business name so that there are not multiple names on the door, is this possible?
Hi Patrick,
This is certainly possible. However, your wife should carefully consider whether she wants to share a business with two others.
They may be great friends now… just assuming…
If they share a business, one or more of them may want out at some point and that’s where things get tricky.
Your wife may want to consider branding her business and licensing the brand name she wants to share with the others. A fee could be paid annually to your wife’s business (brand) to cover the costs of marketing, signage, website, software, etc.
If the others want out at some point, they’d simply not sign up for a renewed licensing agreement.
Be certain this is possible with your wife’s professional licensing rules and regulations which differ by state licensing boards!
Hope this helps…
Good Afternoon!
I have 2 LLC’s. Once is a logistics company and one is a transportation company, all housed under one roof. The logistics company owns the assets that are leased to the transportation company. Both LLC’s have their own revenue and expense streams. What I want to do, is to start an INC to house both LLC and have all revenue and expenses flow through that INC. Is this recommended and or how would you set that up?
Hi Brian,
It’s not clear to me why you want to form another business entity (a corporation) to own the two LLCs you have already established.
What’s motivating you to do so?
Knowing this will help me address your question…
my motivation is to have only one set of books to track revenue/expenses.
Hi Brian,
Okay, that helps a lot!
Assuming your LLCs are single member LLCs, you could distribute the assets and liabilities (everything on the LLCs’ Balance Sheets) to you (their owner) and then contribute them to a newly-formed corporation. At this point, the two companies would be one business and all of its income and expenses would be reported on the corporation’s tax return.
Alternatively, the newly-formed corporation could acquire by merger the two LLCs.
You should carefully consider the tax consequences of distributing the LLCs’ assets and liabilities to you or alternatively merging the LLCs as there may be tax consequences when you do so. Please consult your CPA regarding this!
I would be willing to bet that the reason your two businesses were initially set up separately was to protect the valuable assets (the trucks) from potential liabilities (from transportation accidents). By combining the two businesses, you will give up this protection and that’s a very important consideration.
Also, combining the two businesses will mean you will have to assign or renegotiate any contracts, insurance policies, loans, etc. your existing businesses may have in place. This may be difficult or impossible to do.
Hope this helps a bit Brian…