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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I have the opportunity of adding new lines to an ecommerce biz which currently has nexus in most states. Can I add the new lines as a separate website and under a new LLC to avoid the new lines falling into nexus? Can I split the existing business up into separate LLC’s to avoid nexus?
Hi John,
When you expand a business and end up establishing nexus in other states, you’ll be required to register in those states, file tax returns, and possibly collect sales tax as well.
If you choose to form additional LLCs and websites, you’ll end up doing the same. So, I don’t see a good reason to create those additional business entities and websites.
Hope this helps…
Hello,
I have two LLCs, two EIN and have a DBA under one of the LLCs.
I would like to condense the two LLC under one. One is a Travel Agency and the other is a Service with a DBA of a clothing Apparel.
Since the Travel agency is a service I would just like to combine both LLC into 1 and I was thinking of having the Agency as a DBA so I can keep the same name.
What is your best advice for me?
Mel:
Our best advice is to speak with your tax advisor, or, please contact us if you don’t have a proactive tax advisor. There is simply not enough information in your question for us to give you a definitive answer as to how to merge or consolidate your entities.
If both LLCs are simply Single-Member LLCs which are ignored for tax purposes (meaning you report your income on Schedule C of your 1040), it’s a little bot easier. However, you have a business which sounds like you have inventory and perhaps other assets and you will need to know how to treat these assets when merging your businesses.
The bigger picture here is why you would want to merge two dissimilar businesses. The primary purpose of an LLC is asset protection if your are sued. If you merge both businesses, you are basically putting the second business at risk if the first business is sued and loses. So, instead of a creditor getting just some of your assets and closing one business, the creditor could get both businesses and their assets.
I have an S-corp and I wanted to expand mu business and opened another company but LLC in another city but same state , and it has same business activities. because it was a headache every year filing two separated tax return . I decided to have one corporation , in two locations
how can I do that . FYI the LLC had me and my husband but now only me
Thanks
Heba:
Because your S-Corporation and original LLC were set up as separate entities, there are special rules that apply to acquisitions or mergers of business entities. Since we don’t know how the LLC is taxed from your question, you will need to speak with a tax advisor as to how to dissolve or merge the LLC into your S-Corp. You cannot simply start tracking everything as one business because the LLC has assets and liabilities that cannot just “jump” into the other business.
I am in the process of launching multiple businesses for which I will be setting up a holding parent company and multiple daughter operating companies. When forming the LLCs, I want to pass assets and/or cash as my capital contribution. I have not generated any income in the past two years while I developed a prototype and infrastructure, my wife’s job being our sole source of income. I will be ready for customers in the next few months and expect to be cashflow positive shortly thereafter.
1) Are we better off tax-wise to “contribute” most everything now or wait until January?
2) Does it matter where the capital contributions reside? For example, if I intend my capital contribution (SMLLC parent and daughters) to be about $100k of cash + $25k of assets which are currently shared by the daughter companies, can I put $900,997 into the parent and $1 into each of the daughters?
James:
I always scratch my head (maybe hoping for a hair or two to grow back) wondering why people start off their businesses making complex entity combinations. Most of the time, this is an exercise in spending money on entity fees, tax returns and excess compliance requirements that really aren’t necessary at the get-go. An entity’s purpose is usually two-fold: liability protection and tax protection.
With a SMLLC or even a collection of SMLLCs, for tax protection considerations, you have nothing, literally. The IRS just does not recognize these entities at all. You essentially have a sole proprietorship as the default. So, we’re talking no tax protection at all.
A business does not “start” until the state’s minimum contribution of capital has been tendered to the business. In some states, this is as little as $10, in others, $1,000. However, for tax purposes, you don’t recognize income and expenses until your business is READY for business (in other words, ready to make a sale). Until then, it is just in the start-up phase and its start-up expenses are usually capitalized.
IF all of your entities are SMLLCs, which are ignored for tax purposes, then ALL of the income and expenses of all of the child LLCs are all rolled-up and included in the parent LLC. One financial reporting pile. You don’t fund all the individual entities unless they are going to be taxed as something other than ignored entities.
I strongly recommend that you speak with us or your current tax advisor about how to structure entities for tax protection. As well, speak with an attorney about how you want to best structure your conglomerate. If you are serious about running your business, you will understand that having the right entity or structure is more complex than filling out a simple form.
Hi, I have 2 LLC’s engaged in very different, unrelated business activities; one is a salon, one is art, furniture refinishing and epoxy countertops. My salon has an EIN. The other business doesn’t. I had wanted to DBA the second business under the first, but was told they were unrelated so had to be formed as completely different businesses. That seems not to be the case, though. Correct? Can I now make the original salon LLC the parent company, and add the other as a subsidiary? Also, if I do, and I have a special SBA loan i recently obtained for the first company, can the funds obtained from that loan legally be applied to the expenses of the subsidiary company?
Ms. LeFay:
There are no limitations as to what types of business activities you can have under an LLC. You can sell fish and laptops or cut hair and sell countertops all in one LLC. Just keep in mind that you will track all of the income and expenses in a single LLC together. And, more importantly, if you cut someone’s fingernails too short and they get infected, that customer can sue you for every asset you have in your salon, fish inventory, laptop business and countertop business because they are in a single entity.
When you have a SMLLC, it is ignored for tax purposes. If one LLC owns another, and both are SMLLC, it provides that same no-protection from taxes, but legal liability can be separated. But if you are doing business referring to the EIN from the parent LLC, it’s as though you are doing business from that parent LLC, not its child. So, you would lose the LLC protection in the child entity.
Let’s see…since it costs absolutely NOTHING to get another EIN for the other LLC, I can figure no reason whatsoever why you don’t get the second LLC its own EIN.
However, asking about SBA funds–whether they can be used for the second LLC, I can almost bet that there is a specific written prohibition about using SBA funds for anything related to any other business. In other words, no, you cannot use SBA money granted to one LLC for the expenses of any other LLC whether or not it is related to the first one.
Hello,
We currently own and operate a LLC with a dba name to the public which has been in business for over 20 years. We are considering adding an additional line of related business and trying to determine if we can add it under the current LLC or need to open a new one?
From the posts, it appears that we can do this. We need to apply for additional licenses in the field which require a sales tax number. The current business is a service business and does not charge sales tax. The new business would charge sales tax. Would this factor cause issues?
Another question – can we add additional words to the dba name without being required to obtain a new entity? In order to add the additional line of business, we need to revise/add to the current name to project the type of business service offered.
I have a Living Trust and also an LLC in which I am sole trustee, both in state of NM. I am considering a second LLC in state of Nevada. I would like to accomplish several things: 1) Put assets into NV LLC to hide them from a potential creditor who claims money I do not believe I owe.. Keep the NM LLC for operating but without assets. 2) Have the NM LLC pay rent to the NV one. Now that I own my house free and clear I have lost huge tax deduction.
I saw a reference to a free initial consultation. I would be interested in discussing details as to having you set me up in NV and layering for asset protection and tax benefits. Thanks.
My husband is planning on opening his own insurance agency and tax preparation business, can he use the same entity for both operations?
Karina
The short answer is yes. However, there may be some stipulation that your state insurance regulations or by the insurance companies he is brokering for with respect to operating the tax preparation business combined with the insurance agency. Additionally, you may want to investigate having just one LLC or having each business have its own LLC.
Sincerely,
Chris
Disclaimer
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of informational purposes only. It is not a substitute for consulting with your legal or financial advisors to obtain their professional consultation.
I want to start an LLC.
My husband has an LLC.
Is it ok to have two LLCs under one household? Both businesses will start in a home office.
What are the implications of taxes and other things?
Christina:
A single-member LLC is ignored for tax purposes. Therefore, there are NO tax implications, whatsoever by having an LLC.
There are NO limits to how many LLCs you are a member in. Just keep in mind that each LLC acts a barrier against liability issues to protect its members individually.
At the state level, you MAY have to file annual reports and/or pay annual fees to maintain your LLC regardless of revenue, depending on your state of residence.
Hi, I have two auto shops that I own in Southern California. One is a franchise and the other one is not. They each have their own DBA under the same Corporation. I have verbally sold the shop that is not the franchise. How would I take that one out of the corporation and continue on with the one with the franchise? Thanks!
Hi, Mark!
What you are describing is the sale of ASSETS of the corporation. In your sale agreement, you will need to identify and value each individual asset in order to determine the gain or loss on EACH asset. Your buyer will also need this information in order to create a basis. In addition to the price for the assets, a portion of the price may be assigned to “Goodwill”, which is the value of the intangibles of an existing business, such as the name, customer base, etc.
Selling a business to minimize your taxes requires a strategy to be in place far before a sale is contemplated. Contact us for a comprehensive Tax Strategy.
We are currently in the process of opening up three new LLCs – AAA LLC, BBB LLC, CCC LLC. These LLC’s will be single member LLC’s owned each by DDD. DDD is owned by 2 members with 50% ownership each (Husband and Wife files joint return).
Please note that the 3 llc’s were opened to diversify the risk and have each LLC report as a disregarded entity and owned by a Master LLC (DDD). In this regard, is this the best strategy to do this real estate setup, which is have each llc own a real estate property and considered a disregarded entity and then have one master llc (DDD) own all the entities and show the revenues from rent and expenses at the DDD – master llc level which then roll into a 1040?
Or do we need to elect to prepare S-Corp return and pass the income and expense to shareholders then roll into a 1040?
Murthi:
Sounds like you are building your real estate empire. You correctly determined that a SMLLC is ignored for tax purposes. However, your “DDD” top-level LLC, as a default, is also ignored as well, since a husband/wife ownership is considered one owner. Alternately, you could elect to be taxed as a partnership or as an S-Corp.
This is an OK set-up for legal protection, but not great. Two levels of LLCs don’t give you double the liability protection. And an LLC isn’t the best choice for complete asset protection, but it certainly provides some protection. There are other options that work better.
Finally, the proposed 2-tiered structure gives you NO tax protection whatsoever as it is. You are paying taxes as though you have no entities whatsoever. From a cost-benefit standpoint, you have little compliance costs, but you also have no benefits.
Our firm specializes in helping real estate investors take advantage of the tax code. We offer a free initial Zoom conference to review your situation. I also recommend speaking with an asset-protection attorney for how to best structure your enterprise if that is what is most important.
Hi I recently applied for an LLC in Aug . I wanted to know if I can have another business with my children under the same LLC? if so what would I need to file?
Sabrina:
An LLC is a legal entity; the equivalent of a separate person in the eyes of the state.
You cannot have two separate businesses with different ownership structures under the same LLC. This would be a like a person with two parents also has four parents. It doesn’t make any sense.
In a single LLC, you can do as many business activities as you wish, as long as all activities are legal.
But, each LLC can only have one set of owners (or a single owner).
Each LLC is like putting your business activity in a “plastic bag”. It becomes separate from you for legal purposes. If you put two businesses in one “plastic bag”, you then are commingling everything and if something bad happens to one business or activity, it affects anything else inside the same plastic bag.
If you want a separate activity with a different ownership structure, you MUST create a separate entity.
Hi,
I am trying to lunch a new product for sale. I have a business LLC and I just got DBA. I want the product to be under DBA name.
I am not sure if on packaging I should put both LLC and DBA name ( they are different names) or DBA name will be enough?
Thank you
Marta:
Packaging and labeling laws vary by state and may also be affected by federal laws. You should consult an attorney in your state who is familiar with consumer product law.
Can a Tenant put two separate company names on one Lease?
Jane
That would be a question for your real estate agent or attorney. If you are concerned about a listing I would suggest that confirm who are main owners of each entity. Then have them sign both in the name of the company and personally.
Sincerely,
Chris
Disclaimer
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of informational purposes only. It is not a substitute for consulting with your legal or financial advisors to obtain their professional consultation.
Hello, I am getting ready to open a tasting room under a certain name, that is a LLC, could i also open a seasoning company under the same name? One business will be selling samples of moonshine and the other spices… Im in the state of VA.
Hello, Lee:
Unless you state otherwise in your operating agreement (you make the rules!), your LLC can engage in any legal business. Sell moonshine? Check. Sell seasonings? Check. Christmas Trees? Yup.
Now, your state may have specific restrictions that I am not aware of in terms of selling alcohol and firearms, for example, in the same place. But most other combinations are likely OK.
Just keep in mind that your LLC protects you from lawsuits. But anything within that LLC is fair game, so picture your business in a “bag”. If the business inside the bag has a leak, you don’t get wet because it’s contained in a bag. But if you have two or three businesses all in the same bag and one springs a leak, then anything INSIDE the bag will get wet! If each business is in its own bag, then leaks cannot affect the other businesses. You need to decide what business activities need their own “bag”.
Hello. Curious to know… Company “A” is an existing company that has individual stock ownership. Company “A” wants to create Company “B” that, if possible linked to Company “A”, but wants Company “B” to have separate stock ownership. Is there a plausible business structure to allow for this? Does this make sense? Please do hesitate to ask any questions. Thank you!
Pete:
First, understand what represents ownership of a corporation. An owner of a corporation exchanges cash (or other assets) for stock. Stock is the only evidence of ownership of a corporation. A company cannot be owned by stockholders AND by some other “string” that another person or entity can hold. So if Company B sells 100% of itself to 1 stockholder, then there is nobody else that can own that corporation. If Company B sells 75% of the stock to one person, then it can sell the remaining 25% of its shares to someone else. That someone else could be Corporation A.
So, if Corporation A does not own stock in Company B, then it, by definition, cannot own ANY portion of Company B. There’s nothing left to own.
I have (2) sole proprietor businesses and an LLC. I’m thinking of creating an S Corp as a parent company to the 3 businesses. The idea is to funnel profits from each of those businesses into the newly formed S corp and to consolidate tax returns and just file an 1120s. Is that something that’s doable?
Ray,
While it is certainly doable to put all your business activities under a single S-Corp, the question is really “do you want to do that?”
This is a “You CAN do that, but is it SHOULD you?”
Since this is a public forum and I cannot get into personal details here, I would recommend you give us our your CPA a call regarding long-term strategies. I just don’t have enough information in this short question to answer if this is a good idea in your case.
As a simplified answer, you must consider both tax and legal protection when you create or use an entity.
I offer a free initial call if you’d like to explore this in more detail. 832-572-5400
Can two businesses ( in this case two art galleries) form an S corporation? There is a form to be filled for that with the name of each business or the individual owners of each separate business open together a new entity?
Irina:
Similar to my answer above, you could take two businesses and combine them into a single S Corp, but the owners would have to be real persons and not companies. But does it make sense for both legal and tax protection?
Other options include partnership or joint venture. I recommend that you consult with both an attorney and a tax advisor to understand pitfalls and advantages of an entity and selecting the right one.
We offer a free initial consultation at 832-572-5400 if you’d like a tax viewpoint.
I own a sole proprietorship business that sells my self-published children’s books. I want to add a division to the company that sells soaps and other self body care products. I need for someone to point me in the right direction. Help!!!
Hi Melanie,
Which state are you located in?
Hello!
My consulting firm in GA is registered as a S Corp. I plan to start two additional online only businesses with different names.
Is it ok to use my S Corp bank account for all three lines of businesses? At tax time, I will separate out income/expenses for all three in one income statement for the S Corp.
Also, would you recommend that I set up DBAs for the two additional businesses with the state even though they are online only.
Thanks in advance for your answers.
Hi Scott,
If either your S Corp or you as an individual (sole proprietor) start to market a business under a trade name that differs from your S Corp or your personal, legal name, you will be required to file for a fictitious name (DBA).
If you choose to have the S Corp file for the two DBAs, then your bank will need to approve whether the deposits for the online businesses may be made to your S Corp bank accounts.
And in such case, you’d file all of the income and expenses for the consulting and two online businesses on one single tax return — the 1120S, even though it’s best practice to keep a separate set of books for each line of business.
Hope this helps a bit…