Holly founded ExitPromise.com as well as StartupPromise.com and so far has answered more than 3,000 questions asked by business owners about starting, growing and selling a business.
- Startup vs Acquisition – Which is Best? - August 21, 2023
- How to Get Money to Start a Business - August 7, 2023
- How to Raise Capital to Start a Business - February 17, 2023
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.
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How to Structure Multiple Businesses Under a Single Business Entity
- First determine which type of business entity you’d like to form:
a. Limited Liability Company; or
b. Corporation (an S or C Corporation); or
c. Partnership. - Determine if the business trade name you’d like to use is available in the state in which you choose to form a business entity.
- If it is available, determine if the trade name has been federally trademarked by another party. If so, go back to the drawing board!
- If it is available for your federal trademark registration, consider filing for it after you launch your business.
- Form the business entity you’ve chosen in the state in which you choose. If you choose an LLC, you will need to draft an Operating Agreement. If you choose a Corporation, you will need to file Incorporation documents.
- File all of the necessary start-up documents and public notices with your state and local government (if applicable).
- File for a Federal Employer Identification Number (EIN) for the business entity.
- Make any federal tax elections necessary.
- Under the business entity, apply for a fictitious name for any other lines of business you’d like to operate under the umbrella of the business entity you’ve formed.
- Check out our Startup Checklist for your new business to make certain you take all of the necessary steps.
Example of Multiple Business Structure Under a Single Business Entity
If you have a business that manufactures shoes in New York called ‘Soho Shoes, Inc.’ and you’d like to offer speaking engagements to shoe designers under the trade name Soho Shoes Speaks and start a blog about the life of a shoe designer at SohoShoesMusings.com, you could hold all these lines of business under one company.
To do so, the incorporated business known as Soho Shoes, Inc. would apply for two fictitious names (or DBAs) — one for Soho Shoes Speaks (for speaking engagements) and another for Soho Shoes Musings (for the blog).
It’s important to note that before your business files for a DBA or Fictitious Name, you should verify that your use of the name does not violate another party’s intellectual property rights. You don’t want to get into trouble and have to start over again after your start marketing your products and services to potential customers.
This multi-business structure example is really one business entity with three different marketing or trade names. So, it’s relatively easy to co-market the related lines of business while minimizing the tax reporting requirements. In my book, this structure saves time and money and that is always good!
What Does Filing a Fictitious Name Mean?
When your LLC, Corporation or Partnership has filed for a fictitious name, the state has given permission to the business to use a trade name for marketing purposes which differs from the business entity’s legal, or official name. It’s really that simple.
The fictitious name certificate does not create a separate business entity so the line of business operating under a DBA is part of the business entity which filed for the DBA.
You will not be able to sell member shares in the LLC, stock in the Corporation, or partnership rights in the Partnership for one of the lines of business which operates under the fictitious name.
And if you choose to sell one of the lines of business operating under the fictitious name, you will have to sell under an asset sale agreement as only part of the business entity will be transferred to the buyer. This can be tricky to do if the accounting books and records for the multiple lines of business have not been kept separately. So, seriously consider keeping separate banking and accounting records for each line of business under this multiple business structure if you think you may sell your business in the future.
In part three in this series, you may explore alternatives to using a single business entity with multiple fictitious names (or DBAs).
Hello, looking to purchase another auto shop( SCorp) with my auto shop (SCorp). How do i go about combining the 2 under one roof but 2 separate identities so i can keep his contracts in tact until further down the road, if this is even possible or advised?
Hi Jim,
By forming a separate business entity for the newly-acquired business, the identities of the two auto shops, its contracts, assets and liabilities would be separated.
It’s not clear to me what you mean by “under one roof” in the context of your situation. It’s not likely you’d operate an auto shop in another location under the same physical space as your existing auto shop unless the location of one of the two shops is not important.
With further clarification, I’d be happy to address your question…
There are 4 of us looking at purchasing a building to put each of our small businesses in. The group wants to take out a loan to include kitchen equipment for the catering business. I am an art business and disagree with this decision. We are just in the discussion phase. The businesses are not related, I have an art business, one is a yoga studio, and one is a catering business. The building is actually perfect for all 3. The thought behind purchasing the kitchen equipment in the original loan is that we could rent out the kitchen when not in use for additional income. My thoughts are that the kitchen equipment is part of the catering business and therefor would be subject to depreciation on their books. My thoughts are we should purchase the building separately as a group of owners (maybe as a holding company) and each business lease their space of the building. Otherwise, why wouldn’t we also include in the loan the equipment each business needs to set up shop? For example, the art studio needs a Trailor for vendor shows and some printing and press equipment as well? Is setting up a holding company for the building with all partners as owners the right way to go? That way if their business does not work out they are still owners in the building and can lease their space out to another business if they desire to do so? Am I correct in my thinking or do you recommend another way?
Hi Amy,
I always recommend forming a separate business entity (from the operating business(es)) to hold real estate for many reasons, including your last point about having the owners of the real property separated as landlords to be free to lease to whatever business operation they choose.
As for the kitchen equipment, I think it may really come down to whether the commercial kitchen is truly going to be rented out to other parties. If not, it is truly equipment necessary to operate the catering business not the real property.
All the best…
Im the sole proprietor of a mind and body spa offering massage therapy, life coaching, skin therapy and yoga and would like to open a massage school under the same roof. What would be best?
Hi Michelle,
Your existing offerings are all related to wellness offerings to consumers and share similar risks.
Your intended new venture in education, although related to your existing business, is a different animal with a different set of risks and likely licensing requirements.
For this reason, I recommend exploring how you would obtain insurance for these two lines of business and if it’s necessary by licensing regulations to form a separate business entity for the school.
Your business attorney should be able to assist you with this as well.
All the best…
Hello, my wife is a massage therapist and wanting to open her own business with two of her co-workers. They will each be independent contractors but are wanting to operate under one business name so that there are not multiple names on the door, is this possible?
Hi Patrick,
This is certainly possible. However, your wife should carefully consider whether she wants to share a business with two others.
They may be great friends now… just assuming…
If they share a business, one or more of them may want out at some point and that’s where things get tricky.
Your wife may want to consider branding her business and licensing the brand name she wants to share with the others. A fee could be paid annually to your wife’s business (brand) to cover the costs of marketing, signage, website, software, etc.
If the others want out at some point, they’d simply not sign up for a renewed licensing agreement.
Be certain this is possible with your wife’s professional licensing rules and regulations which differ by state licensing boards!
Hope this helps…