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 a clothing brand that I want to establish an LLC for i.e. Miracle Warehouse Clothing Brand. I have three completely different logo statements I want printed on the apparel i.e Focus First, Tunnel vision, Drive Wear. I want all three logos to be protected from being used under the Clothing brand name. In addition to that is it possible under that brand (Miracle Warehouse) to cover potential speaking engagements, concerts, and potential book of excerpts under the brand or one of the logos. Please explain the best way to get this started successfully?
Hi there, so am under disability (SSI) and i had a business idea that i wanted to implement that i was hoping that in the event am not there in the future then my daughter can inherit it for herself and maybe my future grand-kids. But i wanted to know since am under SSI, can my daughter get the LLC tax ID registered under her name even though i will be the one running the business? My worry is if i get the tax EIN number it will cause problems for my social security benefits which currently we need to survive on.
Dear Julie
Owning even a very small business can affect your eligibility for Social Security disability insurance benefits (SSDI). This is because, if the Social Security Administration (SSA) concludes that the work you put into it is substantial gainful activity, you could lose your benefits—or you won’t qualify for benefits in the first place. Running a business includes any kind of self-employment, including providing services, like a bookkeeper, carpenter, gardener, or handyman; doing contract or consulting work (freelancing); farming; and being a landlord.
If you are self-employed, the SSA will use either the “Countable Income Test” or the “Three Tests” to determine whether your work is considered substantial gainful activity (SGA). The test the SSA uses depends on when you start your business and why your work is being reviewed. (Note that Social Security does not use these tests for blind SSDI recipients; the $2,110 blind SGA limit is used for these recipients.)
The Countable Income Test
If you’ve received Social Security disability benefits for more than 24 months and you begin to run a small business or do freelance work, the SSA will use your “countable income” to see if the work you do for your small business should be considered SGA. If Social Security finds that your contribution to the business is SGA, it will find that you are no longer disabled.
Here’s the rule for the countable income test: If your countable income is more than $1,260 a month (in 2020), your self-employment will be considered SGA and you will no longer be eligible for benefits, unless you can show you are not providing significant services to your business. If you are not providing significant services, you can make over the SGA amount.
Countable income. Countable income is that portion of your salary or profits that you earn from your business based on your own productivity. To determine your countable income, the SSA will deduct the following from your net earnings:
• the value of any significant amount of unpaid help given to you by your spouse, children, or other people
• impairment-related work expenses
• unincurred business expenses paid for you someone else or by an agency, and
• for farms only: soil bank payments (if counted as farm income).
Significant services. The SSA defines significant services differently based on the type of business you own.
When you first apply for SSDI, or if you have been receiving benefits for less than 24 months, the SSA will use the “three tests” to determine whether your self-employment work is SGA.
The three tests are:
• the significant services and substantial income test
• the comparability test, and
• the worth of work test.
If any one of these tests shows that the work you do for your small business is SGA, you will be ineligible for benefits.
It may be helpful to talk to an experienced disability attorney to discuss how even a small business can impact your benefits.
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.
Thank you for the information on Social Security Benefits and how i may be impacted if i start a business @Christopher Goebel.
My wife and I solely and equally own 2 S-corps and want to merge the corps into one or the other and liquidate the other one. Both corporations own franchises of the same brand and dba the franchise brand name. Can I absorb the assets and liabilities of one into the other and adjust basis and then liquidate losing corp?
Operate a non-profit 501(c)(13) Corporation, a historical site. Unable to apply for most grants because 501(c)(3) is one of the primary requirements. For the sake of the management of our descendants burial site, we believe we need to have that corporate designation remain. However, does it make sense to set up a separate 501(c)(3) for the purpose of all other operations, including procurement of grants, developing programs and events for the historical site, etc.?
Rick:
Each corporation is a separate “person” in the eyes of the legal world. You cannot just close a corporation and “absorb” its assets into another one. There are many reasons what you suggest is not a good idea, both in terms of legal and tax implications. I’m guessing that your motivation is that you THINK you are paying double for the costs of accounting and tax preparation. There may be a few other areas where you think that you can save a few bucks due to duplication of services, but I cannot imagine it is much.
I recommend that you speak with your tax advisor about the financial aspects of liquidating one entity because there are several issues that you may not realize, such as capital loss or gain.
There is also the possibility of a tax-free merger, although this can be complicated if not done correctly. If one S-Corp owns another S-Corp (called Sub-S), then the reporting can be done as a single reporting unit. However, the parent S-Corp needs to somehow acquire the shares of the child entity, resulting in a possible capital gain/loss.
Once you have spoken with the tax advisor, then speak with an attorney to see
if this is a good idea on an asset-protection basis.
With BOTH opinions, then you can decide which action to take.
Dear Rick
One of the most popular kinds of business structures is a limited liability company, mostly due to how many tax benefits there are associated with. When a merger happens between two LLCs, they both will likely operate under the LLC business license. This will not make the process messy in any way. The transition might even become simplified since both sides will know the identical set of company rules.
You’ll need to notify anyone who might be affected by the LLC merging and being eliminated, including:
• The IRS (if there’s an EIN).
• Vendor accounts.
• Registered agent.
• Loan or banking accounts.
Before the LLCs are merged, it’s necessary to have a plan of merger. Both owners will need to get together to create the plan. You’ll need to list the name of every LLC party in the merger who’s involved, as well as the surviving LLC’s name. The surviving entity needs to be identified as an LLC. The terms and conditions will need to be set for the merger.
The document should also list the LLC’s main place of business and what the basis and manner are for changing the interests of the current LLCs into the obligations or interests of the LLC that’s surviving.
After establishing the plan of merger, you’ll need to get approval for your plan. The LLC members need to hold a vote on this merger. If there’s a domestic LLC, every member needs to approve it unless the operating agreement says otherwise. For example, a domestic LLC may need a 75-percent positive vote from its members to be approved for the merger. If the LLC is foreign, the members need to stick to the percentage of votes required by the state in which the foreign LLC was filed.
A copy of the document also must go to all shareholders of every company. This is best done when a shareholder meeting is taking place, as management can go over the benefits of this merger and allow time to answer questions that the shareholders might have.
After getting a positive vote on the plan of merger, the articles of merger need to be formed. This form is on the secretary of state’s website as well as the website for the agency that’s in charge of the state’s business filings. After the articles of merger are created, they should be filed with the secretary of state or another agency in the state.
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.
Can I sublet partial space to a business. I am the tenant. The sublet company belongs to me. So technically I am subletting to myself. I am still there running my first business.
Rajkaur:
Your business means you can set the rules. If you want to spend $500 from your left pocket and put it in your right pocket, then by all means, do it. I’m not sure what you are trying to accomplish by renting a space to yourself, but if the “partial space” you are subletting is your personal apartment, for example, then you will have rental income on one hand and a rental expense on the other.
Please consult your tax advisor for assistance in how to make this transaction worthwhile or to discuss why it isn’t.
Hello i am a massage therapist myself and another therapist are starting a massage practice we would like to be separate entities. Can we each have our own LLC and advertise under a fictitous name. If so would both of our legal documents have dba at the end of our name? thank you in advance.
Casey:
Many times professionals create an association with each professional owning their own LLC or PLLC. The LLCs join together as an association which has it’s own name, such as “Healing Hands Partners, LLC”. Because the association is a partnership of multiple owners, you should have a written operating agreement so that each partner owner knows his/her responsibilities and shares of income, expenses, and other responsibilities.
Thank you for answering my question. Is it possible to have two separate businesses but have the same name only for advertising purpose. So to clarify we want to maintain two separate business. Separate income ,taxes, expenses, ect. Is this possible?
Hi,
I wanted to get some clarity, I read that I can add a business under the umbrella of my current corporation as long as the names/DBA is similar to the current business name and is an extension to the corporation? The first business is a women’s mentoring, community self Esteem modeling coaching nonprofit… and the new business is a traveling agency which I’m an independent agent, I wanted to register a Factitious name or DBA with the same name as the corporation, but put (example) WOP Agency-corporation DBA- WOP Getaway Traveling Agency can this be done? I’m just trying to make things simple, I have the bank account in this name, so instead of filing for this and that I just anted to Connect everything together if it can work this way.
Julissa
Sometimes the easy solution is not always the best one. It appears to me that the two businesses that you operate are two different businesses. by operating them under the same umbrella you:
1) May lose the legal and tax protection of an LLC
2) Using only one back account will complicate your financial records
I would suggest that you work with your tax or accounting advisor.
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.
Great article, thank you!
I am setting up 2 businesses, a mortgage company and a real estate firm. I currently have an LLC in Colorado and would like to have the easiest set up possible, such as DBAs. However, as these businesses are very different from each other and my existing LLC (marketing), is it best to set them up as unique entities under a holding company? Thank you-
Hi Randy,
It’s very likely the new mortgage company and real estate firm will require special licensing which may prohibit you from simply adding a fictitious name (DBA) to your existing marketing company LLC. And that’s probably a good thing. Here’s why…
The regulations, risks and clients you will encounter in your two new businesses will differ greatly from your marketing business. Keeping their respective activities in separate business entities (not as DBAs) will offer you some personal liability protections and will allow those risks and liabilities to be sheltered from the assets and income in your other businesses.
Setting up a holding company is only necessary if you have a good reason to do so. Otherwise, you’re adding complexity to your record keeping, tax filings and administration.
All the best Randy…
I would like to start my own lip gloss business and a clothing business (reselling wholesale clothing) I would like to have the same name for both just change the last wording for example blblblblbbcosmetics and blblblblblblfashion. Do I need to apply to two separate sole proprietor or can they be under the same application? Thanks.
Heather:
Congrats on moving forward with your own enterprise. I’m not sure exactly what you are referring to when you ask about “applying for separate sole proprietorships”. A sole proprietorship business is created the moment you state you are “in business”. No forms, applications or permissions are needed to get started. A sole proprietorship is just Heather selling stuff. You can sell whatever you want and call it whatever you like (well, within reason, of course). If you are asking about a fictitious name application (to get a d/b/a), each unique name has its own application, but any number of dba’s can be linked to one owner and one sole proprietorship.
Casey:
It sounds like you are a bit confused down there in the Bayou state as to what the purpose of an entity really is. To make things simple, you could make a business like they make seafood gumbo and throw everything into the pot. But just because you can, doesn’t always mean you *should*.
Keep in mind the two real purposes of an entity, whether it is an LLC or a corporation or partnership. That is to provide you legal protection and to provide tax protection. A DBA gives you NOTHING in this regard no matter how you organize your activities. a DBA protects you in the same way that the name of your husband’s boat protects the boat itself.
Putting all your activities in one LLC means that if you are sued for providing an illegal marriage (hey, just a what-if), then the unhappy couple could sue you and if you lose, you could lose the seafood store, your admin business, and the captain’s finest boat! What a terrible situation! But more realistically, what if the captain steered his boat into someone’s dock and cause two million dollars of damage–again, all activities are at risk!
A Single Member LLC or even an LLC owned by you and your spouse also provides no tax protection by itself. You like paying lots of tax that you don’t need to be paying?
I think you need to understand that your best business decision here is to spend an hour or so with someone that understands how to provide you protection and how, when, and why to set up the appropriate entities for your protection. Contact your tax advisor and a business attorney pronto. If you don’t have a proactive tax advisor, please feel free to contact me for a free exploratory conversation!
Here is my situation I am a independent contractor doing some administrative work and receive a 1099 from a company, how ever I am also a ordained minister and can perform certain ceremonies with in certain parishes, and plan on buying a wholesale retail seafood license after beginning of 2021, my husband is a commercial fisherman, I would like to move our income from sole proprietor(s) to a more uniformed business structure being more presentable legally as all income combined. I was wondering can I create a holding llc with dba for my administrative, ministry ceremonies, whole sale retail seafood license or should they be llcs within a llc and would that be filed like a holding company also? Should I make it a SMLLC and not worry about adding my husband since it is a community property state anyway? Can I keep him as a independent contractor like he is now and just issue a 1099 to him for what ever product is sold through the wholesale retail seafood business? Or will that double tax us once for him then once for me as 2 separate businesses? Or would it be ok to 1099 him the sale of the product and use the 1099 as an expense to the wholesale retail seafood business? Also should I just use my name as the main Llc so any 1099 income I receive can be deposited as income to one account (as I project the seafood business to do more though) or should I have multiple business accounts? One main llc account for profit to go to and then one for the administrative, one for the wholesale retail, one for his commercial fishing and then our personal account have 4 business accounts and 1 personal ? or not have a main llc account just the dbas and then the profit to our personal ? For example he brings in 1000 worth of seafood product for one day (his commercial fishing business) I sale it through our wholesale retail business at 1500 retail, I would then have to move money from the whole business to his commercial fishing account and then to the personal account, then the 500 profit from the sales would then have to move to the personal account as profit payout (if wanted or just kept in wholesale retail account for expenses) or should I combine my administrative, his commercial fishing income and additional into one account since these will be 1099 from external sources and income be stated for each one those 1099s ?
Sorry for the long post just trying to work out the best way to structure for myself, the businesses and tax filing purposes to not have to do separate filings from our normal self employed 1040 filings and try to keep it files as two sole proprietors or one disregarded entity….