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 (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…