If you are thinking about starting a business, or if you’re a serial entrepreneur adding a new line of business, one of the first things you’ll have to do is to determine your business legal structure.
The four most common types and basic forms of business legal structures in the United States include:
- Sole Proprietorship
- Partnership
- Limited Liability Company or an LLC
- Corporation
This post is intended to help you understand which option may be the best fit to meet your business and personal goals and to explain the key differences among the various business structures.
Understand which legal structure may be the best fit to meet your business and personal goals and learn the key differences among the various business structures.
Legal Structure of a Business Plan
A business’s legal structure is a key component in any business plan. Before you can build or start your new business, you’ll need to determine what legal structure will best suit your fledgling enterprise.
In certain cases your choice of a business legal structure will determine which income tax forms you will file annually. It will also determine the type of income taxes you’ll pay on the business’ net income and, more importantly, will have a big impact on the personal liabilities you and your family may face as a consequence of business ownership.
And if you intend to sell your business, its legal structure also will have an impact on many aspects of the sale process and the taxes you eventually will be required to pay.
Sole Proprietorship Definition
A sole proprietorship is a business that is owned by one individual and who has not formed any type of business entity such as a partnership, LLC or corporation. As a sole proprietor, an individual assumes a business identity by selling products or delivering services to others under his or her personal legal name.
Small businesses with a single owner are considered to be a sole proprietorship by default unless they officially form a separate, legal business entity. Owners of a sole proprietorship files their business taxes in conjunction with their personal taxes on a Federal Schedule C.
If an individual wants to use a name for their business activities which differs from their legal individual name, they must file for a fictitious name for the sole proprietorship. A fictitious name is also known as a DBA which is an acronym for ‘Doing Business As’. Those whose chose this type of trade name for their sole proprietorship do not gain any additional protections from legal liability. The fictitious name certificate merely grants the sole proprietor the right to use the alternative DBA trade name on his or her business signs, invoices, investment accounts, leases, business contracts, business checking accounts, etc.
Choosing to be a sole proprietor means the individual owner accepts unlimited liability for the business along with all of its debts, including all known and unknown liabilities. This type of unlimited liability exposure means that in the event the business faces a lawsuit, or does not have the ability to pay any of its debts, the owner’s personal property, assets, and other income will be at risk in addition to the business’s assets.
The unlimited liability nature of a sole proprietor is due to the fact there is no legal separation between the income, assets, and liabilities of an individual and business. Whatever is owned by the individual, including any assets and income built up or earned in the sole proprietor’s business is accessible to any creditor of the individual. The reverse is also true.
Sole Proprietor Tax Treatment
Many people mistakenly believe that if they do not have a business entity formed and they sell products or their services to others, they do not have to report their income and expenses to the IRS. This is not the case. By default, people in this situation are considered to be operating a sole proprietorship.
The advantage to a sole proprietorship is that the owner doesn’t need to file taxes separately or comply with any special government filings or ongoing reporting. However the disadvantage of a sole proprietorship is that if something goes wrong on the business side (debts, liabilities or legal problems), the individual owner may lose both business and personal assets and income. And if the individual or his or her spouse are sued outside of the business, any assets and income associated with a business operated as a sole proprietorship are at risk of loss.
Partnership Definition
Partnerships are essentially two or more sole proprietorships operating under a single entity. If two or more individuals begin working together in a business operation and have not formally formed a partnership, LLC or Corporation, by default, the business operation is regarded as a General Partnership.
Partnerships establish one General Partner and he or she has unlimited liability for the partnership. Conversely, a Limited Partner’s personal assets are at risk only to the extent of the Limited Partner’s investment in the business.
One of the major advantages of a partnership is that more owners often will result in more resources. Together, multiple owners can pool capital, skill sets, and networks to create an advantage as they operate their business.
Business Partnership Agreement
One of the largest risks associated with operating a business as a partnership is if a partner makes a serious mistake which has legal ramifications or otherwise no longer works amicably within the business relationship. For this reason, it’s very important to take the time to carefully draft and execute a partnership agreement to address important partner matters such as compensation, distributions, retirement, buy-sell arrangements, disability and other potential dispute-resolution methods.
Partnership Tax Treatment
Partnerships are required to file a federal tax return every year. And in most states, a similar tax return is often required. A Federal form 1065 is filed on behalf of the partnership and its partners. The income (or losses), certain deductions, and guaranteed payments paid to the partners from the partnership are passed through to the partners. Each partner receives a federal form 1065 K-1 that identifies the items of income and expenses which should be reported on the partner’s individual federal tax return.
Limited Liability Company or LLC Definition
An LLC offers the best of two worlds. It is taxed like a sole proprietorship yet it offers limited liability protections for its members, similar to those protections offered to shareholders of a corporation.
LLC owners are called members and they may use losses incurred by the LLC to offset income up to the total amount the owner has invested, but not more.
In the event the business runs into legal or financial trouble, the owner’s personal assets have more protection than those of a sole proprietorship – however that protection is limited.
And LLCs may be subject to additional state and/or franchise taxes separate from its member/owners.
Limited Liability Company Advantages
If you’re contemplating the formation of an LLC over a sole proprietorship, note the LLC will offer you more personal liability protection and be perceived by customers, vendors, employees, and others as an established business operation.
In addition, LLCs are simpler to form than a Corporation and generally cost less to operate from an administrative perspective. LLCs also offer members much flexibility regarding how profits and losses are shared between members and how distributions may be made.
Limited Liability Company Operating Agreement
One of the key steps a business owner should take when forming an LLC (either as a single-member LLC or as a multi-member LLC, is the development of an Operating Agreement for its member(s).
The LLC Operating Agreement should spell out clearly what is expected of members, which members have what roles and responsibilities, how profits and losses will be shared, how and when distributions may be made, and how ownership may be bought or sold in the future, among other important matters.
Limited Liability Company Tax Treatment
LLCs are taxed on their profits for federal tax purposes in one of several ways:
- By default, a single member LLC is treated as a sole proprietorship and if it has multiple members, the LLC is treated as a partnership; and alternatively
- If elected separately, the LLC may choose to be treated as a C Corporation, or as an S Corporation for federal tax purposes.
Most states automatically recognize the same tax treatment or any alternative elections, however it’s wise to verify this with the state in which your Limited Liability Company is formed and/or conducts its business.
Corporation Definition
A corporation is a separate legal and taxable entity, which is independent from its owners who are called shareholders.
Because the business is treated as a separate legal entity, there is less risk to the owner’s personal assets. Corporations may have one or many shareholders, all of whom have the right to profits through dividends in the form of cash and/or additional shares of stock, but who are not held personally liable for the business’s debts and legal issues.
If you have (or plan to have) more than one business under your ownership, read more about how multiple business structures can face different tax consequences here.
Corporation Formalities
One of the biggest differences between a corporate structure and all other forms of business structures is the formalities the officers and directors must maintain to retain the corporation’s independent, or separate legal status from its shareholders.
Such formalities start when the business is formed. A corporation must file formal Articles of Incorporation, hold a meeting of its shareholders to authorize the formation of the business entity, issue shares of stock (certificates) to its shareholders, publish a formation notice in one or more legal journals, to name a few.
Any time a decision is made by the corporation’s Board of Directors or Officers, such a decision must be voted upon, approved, and recorded in the Corporate Minutes. And everything must be entered into the corporation’s books and records.
Holding an Annual Meeting of the Shareholders is also a requirement and so is the documentation of any decisions made at the meeting.
Corporation Taxation
By default a corporation is treated for federal tax purposes under U.S. Title 26; Subtitle A; Chapter 1; Subchapter C (the C Corp).
C Corporations are taxed solely on their income and the business’s income and losses are not reported on the owner’s personal tax returns. A federal tax form 1120 is filed by the corporation each year.
Distribution of corporate dividends received by the shareholders of a corporation are taxable at the federal level and in most cases at the state level.
If by election, the shareholders of a corporation choose to elect Subchapter S federal tax treatment, then the income, expenses and certain other tax credits will not be taxed at the corporation’s level. Instead, they pass-through to the shareholders according to their respective ownership percentage and each shareholder reports these on their personal tax returns.
When a corporation has elected Subchapter S tax treatment, then a federal form 1120S is filed by the corporation each year and each shareholder receives a federal schedule K-1 to report his/her pro-rata share of the business income on their personal tax return.
Each state has its own rules with regard to how C Corporations and S Corporations are treated for tax purposes. In some states, additional franchise taxes are also paid by corporations, regardless of their federal tax status.
Other Various Business Types and Structures
Benefit Corporation
Benefit Corporations are relatively new in the United States and are not recognized in all states. It is a for-profit business entity (which means it pays income taxes on its profit) while its purpose must have a positive impact on society and/or the environment.
Limited Liability Partnership – LLP
LLPs are similar to a Professional Corporation as they are suitable for those employee-owners who provide certain services. The underlying business entity in the case of the LLP is a partnership and not a corporation.
Non-Profit Entity
A non-profit entity is not a separate business entity at all. Instead, it is a corporation which has applied for and obtained permission from the Internal Revenue Service to be treated under one of the non-profit tax codes. This designation as a non-profit by the IRS is only awarded after a lengthy application and vetting process. Upon its award, the corporation is no longer subject to federal income taxes.
Professional Corporation – P.C.
When employee-owners provide personal services in the fields of accounting, actuarial science, architecture, consulting, engineering, health, veterinary, law, and the performing arts, the corporation is considered to be a Professional Corporation and is subject to specific tax rules which differ from the rules applicable to C Corporations and S Corporations.
Professional Limited Liability Company – PLLC
Similar to a Professional Corporation, the PLLC may be used when employee-owners provide certain personal services under a Limited Liability Company entity structure.
Series LLC
Certain states permit a single LLC to be formed and to serve as the master of a series of LLCs. Each LLC in the series is called a cell.
For those states which offer this form of multiple business structure, the LLC cells held in the series are considered to be a single entity from a legal perspective.
This form of multiple LLC structure is relatively new and is not recognized in all states. Recently, the IRS has been attempting to simplify the taxation of Series LLCs. With that said, caution should prevail as there is little case law supporting the limitation of liability when a Series LLC’s business operations cross state lines.
You may read more in Part Two in this Series about How to Structure Multiple Businesses Under a Single Business Entity.
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
Hi Holly,
I currently have two businesses. One is a consulting / media agency, and the other is a (related) tech business built around a piece of proprietary software.
I am planning to start a third business that will use the same proprietary software, but in a different context (and with a different brand / different customers etc).
Would it make sense for me to transfer the IP (my software) to a parent / holding company and have that holding company own all three businesses? I would then license the IP to the two subsidiaries that use it, and also to any potential third parties?
I understand an IP holding company is quite common for big MNCs like Apple etc but does this make sense for an early stage entrepreneur? And how might it affect fundraising? Would investors prefer to invest in the IP-Holding Company directly (which I could then pass through to the subsidiaries?)
Thanks a lot,
Gary
Hi Gary,
Congratulations on your successful consulting and software businesses!
Whether having a holding company own and manage your Intellectual Property would makes good sense or not truly depends on your individual circumstances.
I am sorry I can’t offer advice with this matter.
You may want to consult with one of our Featured Advisors who specialize in such matters. They’d be able to address your specific situation and help you as you make this important decision.
We’re happy to make an introduction for you here.
Hi Holly..thanks for the excellent answers. I am trying to buy 2 retail locations from a seller who has 4 of these locations…all with the same name, similar to 4 restaurants that share the same name. The current owners have them under one LLC and one DBA. I have setup a LLC to acquire the assets of the two locations. My question is how do I transact the DBA? Do I setup a new DBA and if so, how do I get the right to use the name he has today? OR should I buy the DBA since I need to maintain the same name as today? If I buy the DBA, how will the seller retain the right to use the DBA for the two locations he will retain? Thanks in advance for your answer and advice.
Hi Jerry,
Well, this is not a straightforward process because it appears the owner / seller has co-mingled his retail names under a single entity.
To accomplish what you’d like to do, you need to consult with an Attorney so it is crystal clear what you (or your new business) are buying and what you are not buying!
If you’d like a referral to an Attorney, you may request this here. We’ll prioritize your request for help Jerry.
All the best…
Hello,
First, great article! I am in a state which allows Social Purpose Corporations. I’m confused about starting a SPC and having multiple brands. For instance, I’m a Certified Health Coach. I’ll be focusing one business/brand on health and wellness. I plan to start a fair-trade wellness business that also employees adults on the Autism spectrum. I have other social purpose ideas so the question is: Can I start a SPC and operate multiple brands? Can I simply do DBAs or must I file separate LLCs?
Hi TL,
Thanks for your kind words. Your five-star rating above will be appreciated! 🙂
Adding fictitious name certificates (DBAs) to your SPC should be done if you intend to market each line of business under a separate brand or trade name and they differ from your SPC’s official, legal name.
We’ve got a good post about DBAs which may be helpful to you.
Having said that, it’s very important to understand when you have multiple lines of business operating under a single business entity (your LLC), all of the assets, liabilities, income and expenses are commingled. This is true whether you file for fictitious name certificates or not.
All the best to you…
Hello,
My wife and I are starting a commercial & residential cleaning service and a passenger transportation service.The city were the LLC will be registered offers the option to form a Series LLC. Is it best to start the LLC with multiple DBAs or file for the Series LLC? We would like to keep the business under one umbrella. However, my wife is completing her schooling to become a Licensed Mental Health Clinician and would like her own practice (2years down the road). The transportation service is hers for transporting families to prisons and jails, amongst other passenger services. We know that the professional service will require a PLLC. Thanks for your advice in advance. Great website!
Hi Patricia,
Creating a business structure for multiple lines of busines by using a Series LLC offers its owners certain flexibility and simplicity when it comes to filing tax returns. However, Series LLCs are not available in every state and are relatively new.
Forming a Limited Liability Company and adding multiple DBAs does not offer any separation of legal liability between the business operations. This is an important distinction from the Series LLC structure and should be considered carefully.
I am very sorry I am not able to tell you which option is best for your circumstances. Above, I’ve linked out to a few other posts on these subjects which may help you learn more.
You should consult with a business Attorney in your state to help you weigh your options.
All the best…
Hi,
I live in Texas. I appreciate your clarification on this.
Business A is d/b/a Florist Inc., selling flowers.
Business A owes lot of money to a Person P.
Business B is a gift shop without d/b/a, but also handles sales of Florist inc too.
Both businesses has same registered agent and same contact info.
Both businesses are in same complex in different suites.
Now, Person P is suspicious that Business A is hiding income via Business B.
My question is how to find out that? is there anyway we can investigate into it? is it legal to do that? conduction sales under two business entities?
Thank you for your time.
Hi!
The lender in this scenario (Person P) should have a note (or loan agreement of some sort) with business ‘A’ which should be reviewed to understand his/her rights.
The agreement may or may not provide the lender certain rights which may permit him/her to examine the books and records of the borrowing business ‘A’.
Unless the loan agreement specifies a prohibition for the borrower to start or own another business, it’s very possible the owner of business ‘A’ has the right to start and operate another business.
I encourage you to explore the loan agreement language as a first investigation step.
All the best…
I’ve been told a C Corporation is not good if I want to sell my business someday. Is this true?
Hi Mary Kate,
Well, unless you sell your stock to the business buyer, selling a C Corporation can be very costly in terms of taxes owed on the deal.
Businesses are transferred to new owners as either a stock or asset sale. Selling the stock typically costs less in terms of federal taxes. Whereas, selling the assets owned by the business can result in double taxation when a C Corporation is being sold.
Hi Holly,
I currently own a Mutli-Member LLC (2 Owners) that is taxed as a partnership, which we can call Company A. Now that this business has become profitable, I am looking to start another company, (Company B), which will also be an LLC. The second company is in a related industry of the first company however offers a different product (for example, car dealership & car parts store). Would it be better have each company as separate LLCs, or would it be better to start Company B as a subsidiary of Company A? I know that if they were kept separate, it would each company would be free from any liability risk the other may pose. However, on the opposite side of the spectrum, it may also mean more paperwork and fees (multiple filings each year, double renewal fees etc.). If I were to file under the same company, I know that there is an increase of liability risk but what else might that entail?
I was also curious about the difference between having a Parent-Subsidiary LLC vs filing under the same name using multiple DBAs.
Hi Sam,
I am not able to advise you as to which entity structure would be best for you Sam. I am sorry.
There are many factors to consider.
In addition to the increased liability risks associated with co-mingling the business ownership, you may want to consider how difficult it may be to obtain General Liability Insurance for a business which has multiple types of risks. Similarly state and local licensing may prohibit co-mingling different types of businesses if professional services are part of the business model.
Parent Subsidiaries, also known as Series LLCs, are not available in all States. We have a post which addresses LLCs and the types of businesses it may own which may be worth exploring.
I do bookkeeping for a client that currently is operating 2 youth group homes under one business name and is a not for profit. He didn’t know he was a not for profit and so wants to change to an LLC with an SCorp election. He netted close to $300,000 in 2015. His question is, “Would it be better to set up an LLC as a parent company, and set up each home as a separate business under the parent LLC? And would they be DBA’s or subsidiaries? Or would it be better to set all of them up under one company name? Or would it be better to set them each up as a separate company, no parent?” He contracts work from his state.
Hi Anna,
I am sorry, I am not able to offer advice regarding how to set up a business structure. I am able to educate you and our other visitors about the subjects related to our site.
When a business entity is established and approved by the IRS as a qualified non-profit entity, it has no owner. Its purpose is defined by its founders in the non-profit status application with the IRS and it is not intended to benefit any individual financially. It’s intended to benefit the group of people related to the non-profit purpose only.
So, the $300,000 net income for 2015 is not your client’s money to keep.
Unwinding a non-profit requires the money in its accounts to be distributed to another non-profit organization and that’s specified in the application made to the IRS when it was initially formed.
Your client should consult with a CPA and Attorney who is well-versed in non-profits before he proceeds to unwind the non-profit or set up a separate business entity.
Again, I am sorry I cannot recommend how he should proceed and hope this helps him resolve the matters.
I own an LLC and thought about having a partner. We think it would be beneficial for him to have his own LLC for tax, expenses, and dissolution purposes.
Can we both have separate LLCs Doing business under the same Name?
Hi Michael,
Yes, the same fictitious name may be used by different business entities (and individuals). DBAs do not give it’s user exclusivity.
Good luck with your new business partner…
Hi Holly!
I currently have an S-Corp with 1 DBA set up under it (a fitness studio) with 9 employees, and I’m now adding the adventure of starting up an athletic apparel line!!! I would like to keep all business, bookkeeping and money separate, so I know I need to get a 2nd EIN, however, I’m stuck between forming a 2nd S-Corp OR setting up an LLC under my current S-Corp…. the main debate being:
1) I will be the sole owner and I predict it will be at least 1 year before I have any employees for the apparel line, so I’m not sure if I want to deal with unemployment insurance, workers comp, etc. that all comes with an S-Corp
2) However, I plan to take the business from e-commerce and doing this solo, to an added storefront (goal in 3yrs) with employees.
~Are there tax benefits to doing one vs. the other?
~Would you set up an LLC for the apparel company or start up another S-Corp?
THANK YOU!!!!
Hi Lacey,
Well, congratulations for having a successful business and your plans to expand! America need more SMBs like you!
The decision regarding which business entity you should use for your new business truly is dependent on many factors and it starts by understanding the differences between and LLC and an S Corporation from a legal and then a tax perspective. I don’t know enough about you or your existing business to be able to advise you. We cover the topics (and several more) in great detail in our e-course for startups. I know you are not a startup Lacey, however by adding a new business it’s best that you fully understand your options before you make a decision.
I own an S-Corp that operates in 3 states. I am currently in the process of selling the part of my company that operates in one of those states. I had not planned to sell “part” of my company before, but am now thinking about the potential options with doing this again. As I grow and open “locations” in other states I’d like my business to be structured in such a way that it is easier to sell those individual parts. In order to do this, should I incorporate a new business with a new name each time I expand to a new state or is there a way to have a core business with multiple arms (that are separate entities) without having separate businesses?
Hi Erica,
Firstly, congratulations on your successful business!
There is no way to have separate business entities which are not separate businesses. When you form a separate business entity, you must maintain a separate set of books and the state in which you’ve formed your business entity will regard every business entity as separate and distinct for legal purposes.
With your existing S Corporation business entity in place, you may want to consider keeping a separate set of books for each location. Doing this will be helpful if you choose to sell one (or more) location in the future. That said, under this scenario the legal liability associated with any one of the locations would expose the assets and income from all locations operating under your single S Corporation and this risk may not be desirable.
You may want to consider forming a single business entity to serve as the Franchisor and multiple business entities to operate the separate locations (Franchisees or Affiliate Stores). Doing so will minimize the liability exposure between operating locations and your core business where much of your value sits.
If you choose to form a Franchisor/Franchisee structure, you should consult with an Attorney well-versed in the subject as there are additional requirements to comply with.
Good morning Holly,
I have one LLC in Wyoming. I live in ME. Sec of State office told me that I can file in ME as foreign entity OR dissolve in Wyoming and start new one in ME OR merge into ME llc.
I have certain assets and expenses under Wyoming llc. If I dissolve wyoming LLC and start new one, I need to apply for new EIN, new bank a/c and new business cc or old ones can be used?
Same question if I want to merge to Maine LLC. what happens for EIN, bank account and cc. Merge means I need to create a new llc in Maine and merge Wyoming into ME llc?
Trying to avoid additional administrative work and expenses.
Thank you.
Hi smith,
Yes, if you dissolve your business and choose to form a new business entity in another state, you will need to file for a new EIN and all other business startup tasks.
If you choose to merge your Wyoming entity into a new entity, then you should be able to use the existing EIN. The bank accounts would need to match the name of the business on record in Maine. When I’ve been involved with this, it’s a matter of providing your bank with all of the merger documents for its counsel’s review and then they will change the names on the bank accounts.
Hi Holly,
My brother and I currently operate a landscaping business together that has not been legalized as of yet. We are pondering the creation of a S corp holding company with me owning 51% and him the remaining 49%, and then our landscaping company underneath as a LLC with a S corp tax identification. Is this possible? What would be your thoughts on this?
Also, we plan to open other business underneath the holding company where the main operator may only be one of us. Does the income from these businesses flow through to each of us and our share of the holding company?
Thank you for any insights you are able to give!
Good morning Jerusha,
It is permissible for an S Corporation to own an LLC or multiple LLCs as you’ve described in your scenario. And yes, under this multiple business entity structure, the income (or losses) from the LLC’s would flow to it’s owner (in your example–the S Corporation). Ultimately the net income and losses would be taxable to you and your brother as owners of the S Corporation (holding company).
Hi Holly, I appreciate a lot you giving answer to these questions. I have one big question. I already have an LLC and under this one, I have a DBA which is handcrafted sterling silver jewelry. Now, I want to open a new different business, which is not related to the first one, that is, merchandise wholesale. Do I need to register a new LLC or can I just get a new DBA certificate under the LLC that I already have? Thanks so much for your help.
Hi Sheyla,
If you’ve got an Limited Liability Company established and are comfortable with co-mingling the assets, income and liabilities (current and in the future), adding a DBA for your new line of business may make sense to do. It’s truly a matter of understanding when you do this you have one business entity and all lines of business are co-mingled. That situation may not be ideal for everyone.
Hello,
My son started an LLC company and listed me as a partner. I am also starting a separate business but we are thinking we can add it to the current LLC for the same protection. I have filed for a dba for the second company but I am only listed as the owner of that dba. What would I need to do to have the separate company protected under the LLC and could I start using “LLC” behind the second company’s name? What are the pros and cons of having a business partner and multiple businesses owned by different partners?
Good morning Shen,
This is a common misconception — a DBA is not a separate business entity. It is a certificate issued by the state that indicates a business entity (or individual in the case of a sole-proprietorship) may use a fictitious name.
When your LLC filed for a DBA certificate, it did not create another business. The ownership of the LLC is identical to the DBA. You can’t split up the ownership in the DBA.
Here’s a post on the subject of DBAs.. I hope this clarifies your situation!
Holly,
This was so helpful and cleared up a lot of my questions. For clarification, are you saying all businesses, no matter which partner created them, could operate under one LLC but they are not considered separate entities as far as liability is concerned?
Hi Shen,
First, remember a DBA is not a business entity. So if your LLC files for a DBA certificate, you haven’t created a separate business entity and your ownership of the DBA (line of business) doesn’t differ from the LLC’s ownership.
That said, if an LLC (partnership or corporation) holds or owns another business entity, the subsidiary enjoys separate liability protection from the holding company. They are separate, legal business entities. This is not the case for a DBA being held by any business or individual.
And it’s also worth mentioning the fact that two related businesses (a holding and subsidiary company) must respect their boundaries to enjoy the separation of liability.
Hi Holly, hope you can get me on the right path.
Name of existing company – World Properties International – McCrae Realty LLC
Want to add –
I Do. I Do.
NC Wedding Officiant
and
I Do. I Do.
NC Mobile Notary
Want to use the same the same EIN that I have for real estate, and the same checking account, and one schedule C at tax time.
So if check is for wedding service is it written to I Do. I Do.? Or to real estate company whose name is on the one checking account?
How does Doing Business As (DBA) come into play with this set up? And with the DBA does this have to be filed somewhere?
Thank you.
Hi Deborah,
Let’s start with your last question…
DBAs are fictitious name certificates which are issued by the state in which your existing business is formed. In your case, that is your Realty business. There are many online services that can assist you in filing for a DBA in your state.
If you want to maintain only one business entity–your existing LLC– and add two DBAs for the wedding and notary work, then you should consider filing for DBA certificates. You should be aware that doing so will mean you have one business entity and all activities, assets, income and liabilities will be co-mingled. This scenario has risks you should consider carefully.
When one of your customers (such as a couple using your wedding services) pays you with a check, you will need a bank account to deposit your payments into. You will need to check with your bank to see if they will open a separate account for each of your three business operations or permit you to deposit all into one bank account.
All the best Deborah…
Thanks for your response Holly. Based on your response seems like I should have 3 businesses with them own checking accounts, EINs, etc. is this correct?
You’re welcome Deborah,
If you chose to have three separate businesses, then you would have separate EINs, checking accounts and tax returns. You’d also have some liability protection between the three businesses. Generally speaking, that’s good!
I am sorry to say that I am not able to recommend for you how to structure your multiple businesses. Instead, I try to educate you and other serial business owners about the potential consequences of the structure of your multiple business entities.
All the best Deborah…
Thanks Holly.
Extremely Helpful info and the fact you respond to everyone is amazing. Ive learned a lot. Keeping it short, I hope…
I own 9 properties. Residential and Commercial. I want to open one Holding company and place each home under a new LLC having 9 LLCs under 1 Mother Holding company and continue this direction to 20+ properties one day. Is this necessary? Perhaps, too safe (I know, never too safe)? Grouping 3 homes in 3 LLCs is more practical? Will filing taxes become more complicated with 9 LLCs + Holding or is it better to file this way?
All LLCs and Holding Company will have me as the only Owner/Manager.
Again, Extremely happy I found this site and Thank You in Advance for your time!!!
Hi Vasilios,
I am happy you found our site too–welcome!
Using a separate business entity for your real estate shelters each property from the liabilities of the others. That’s generally a good objective. That said, having 20+ LLCs to set up and manage may be a bit much.
I can’t make a recommendation for your situation however, I have observed others in your situation grouping similar properties under one LLC to reduce the number of business entities. This should be considered carefully in the context of the income and liabilities each property may have.
All the best Vasilios…
Holly,
In developing the the DBA concept of different business entities. Do you think each business should have its own website?
Good morning Carl,
If your intention is to develop separate DBAs for marketing purposes, I don’t know why you wouldn’t create a website (or at least a URL redirected to your business website) for each DBA.
All the best…
Hi Holly, thank you so much for the information! It is extremely useful. I have read through all the comments and couldn’t find what I was looking for, so I thought I’d ask: if I have 3 separate little businesses (video editing, wedding shooting, and architectural rendering), and I wanted them to be 3 separate DBA’s/sole propietorships, would I need 3 separate bank accounts, 3 separate taxes filled out, etc? Wouldn’t they all just use my social security? I have created one as a DBA in my county and am thinking about developing the other two… so I already have one EIN and my social registered with the IRS. At this moment, I am not ready to jump into the LLC world (these are all very small), so would it be possible to: register the other two DBAs, keep only 1 business bank account for all my sole propietorships earnings, and file taxes at the end of the year using one tax form that sums up all the earnings and expenses?
I really appreciate your advice and look forward to any guidance you may have.
Thanks,
Grant
Good morning Grant,
Given your desire to file one Schedule C form with your personal tax return, yes. You could file for two more DBA certificates and identify you as the ‘individual’ who is using the fictitious names. Obtaining two more EINs may not be necessary–unless your bank requires it. If not, all of the income could be deposited into one bank account and reported on one Schedule C.
Careful consideration should be given in this scenario because you would not have any personal protection from business liabilities if you chose to operate your businesses as a sole-proprietorship.
All the best…
Holly,
Thanks for sharing your knowledge and advice.
I have a question. I have always filed a Schedule C as part of my personal tax return for a business I own. It is a sole proprietorship and I use my soc sec # on the Sch C. Now I am starting 3 separate ecommerce businesses that are unrelated to each other. I believe I should be setting up 3 LLC’s with 3 different EIN #’s and then filing 3 separate Sch C’s for these businesses. My first question is would you advise anything different? Secondly, am I to assume it’s ok to include the 3 new Sch C’s with my personal return. And if so, can I also assume my name goes on the 1st line of the Sch C with my soc sec # and then each separate bus name goes on the Business name line with that businesses tax id#? Thank you.
Hi Bob,
You are very welcome!
When you file for an LLC, if you own the entity individually (and have no other owners), then you may file your taxes as a sole proprietor. In that case, yes. You’d file a Schedule C for each LLC entity and submit it with your personal tax return. You would include four Schedule Cs (one for your present business and three more for the new LLCs you are forming). In this case, you’d use your LLC’s proper name and Employer Identification Number on the LLC’s Schedule C, not your Social Security Number.
As an LLC, you have several options in terms of tax elections and this would mean your taxes would look very different than filing a Schedule C with your personal tax return. To know if one of those choices is better for you, you’d have to consider many factors. We’re covering that topic in our Business Entity Optimizer e-course Bob. It may be worth your while to learn more before you make a decision.
All the best…