Having multiple businesses under one LLC can be a great way to take advantage of the privacy and flexibility offered by an LLC.
Choosing the correct structure will influence your tax liability, so it's important to understand what alternatives exist and weigh the benefits and drawbacks.
Why Should I Have More Than One Business Under One LLC?
As a business owner, you should know that there are five main situations where structuring multiple businesses makes sense:
- If you have a new business that is completely unrelated to your other businesses. This situation often arises when you are starting a business that doesn't fit into the rest of your other business ventures.
- If you are splitting up an existing related business between two or more family members who want to maintain privacy for their various businesses. This situation frequently arises in the context of divorce, inheritance issues, etc.
- If you have started more than one unrelated business, or if you are splitting up an existing related business that is no longer profitable between family members for tax reasons.
- If your business is one small part of a larger entity (like a corporation), and you want to keep it separate from the rest of the corporation for whatever reason.
- If you like having separate LLCs for independent businesses you own, even if they are related.
LLC is one of the best business structures because it allows you to keep each business separate and distinct from the others (while still keeping your personal assets separate too).
4 Ways to Structure Multiple Businesses Under One Roof
There are three ways to structure multiple businesses under one LLC:
1. Operate One LLC Using DBAs
One of the most common strategies for dealing with multiple businesses under one LLC is to operate them all as 'Doing Business As' (DBA) entities.
This means that you create an LLC, pay taxes on income from each business separately under each separate name, but use a single LLC to do it.
Pros and Cons
- This structure is very flexible and can be used to deal with pretty much any situation. It is especially appealing because you don't have to file additional LLCs, which generally have an associated cost.
- This strategy also gives each business a separate legal identity, which helps reduce the risk of personal liability for each business.
- The main drawback here is that you have to file taxes using the same LLC for each business under its separate name. This can be cumbersome, especially if you have a lot of different businesses.
- The names also have to match up with your bank accounts and other financial records, which means it could be difficult to keep track of your finances.
2. Create Independent LLCs for Each Business (Multiple LLCs)
Another option is to have one LLC for each business you operate. This means that the LLC only participates in the profits of a single business and does not participate in another.
Pros and Cons
- This structure is very clean since each business has its own separate business entity, which keeps track of profits from each activity.
- It is also more secure since each business has its own LLC and is independently protected from the others, becoming a separate business entity.
- The main drawback to this type of business entity is that you have more entities to manage, as well as more filing fees.
- In addition, this structure could create additional tax liability if your businesses are not run through a single fiscal year or do not abide by the same accounting rules.
3. Use One LLC to Operate All of Your Businesses (Single LLC)
The third option is to have one LLC that operates all of your business ventures together. This means you pay taxes on each business under a single business entity.
Pros and Cons
- If all of your business ventures are related, then this structure can help keep everything together under one holding company.
- This structure also has the same drawbacks due to the separate businesses.
- You will likely have higher taxes because of double-filing for every single business, but you will only pay once even though your profits are split between companies, which can be pretty expensive at tax time.
4. Create an LLC Holding Company With Separate LLCs Under It
The fourth option is to create an LLC holding company to hold a separate LLC for each business venture.
Each LLC would be responsible for its own profits and losses, so you only have to pay taxes once even though your profits are split between companies.
Pros and Cons
- This structure allows you to keep all of your businesses under one holding company while still making it easy to file taxes.
- It is also an effective way to keep track of the profits and losses from each business since you only report them under a single holding company.
- Although this structure is less expensive than having multiple LLCs for each business, it does cost more money to start up the subsidiary company with its own separate LLC to keep the profits and losses separate
Things To Put Into Consideration
Writing an operating agreement can help you keep things organized when running multiple businesses under an LLC.
You will need to make sure that the operating agreement is tailored to each business, so it can be time-consuming and expensive if you are doing this for every single business.
Running multiple businesses can be complicated. One way to fix this is to have one company that owns the other companies.
That way, you do not have to pay a fee for each company.
But there is a risk--if one of your companies does something bad, it will affect all the other companies too, hence why you need to choose carefully.
In other words:
- The simplest and cheapest technique to run other companies (distinguished by DBAs) is through a single LLC. The drawback is that the LLC is responsible for any legal actions or debts of the DBA firms.
- As a result of the complexity involved in establishing multiple LLCs for each company, this approach is not recommended. It takes time and money to set up individual company entities. Each firm is insulated from the other LLCs' liabilities through this method.
- It is more difficult to administer and requires the registration of multiple entities when you create a parent LLC with numerous LLCs. Depending on the circumstances, it may provide liability protection and tax benefits.
How Many DBAs Can an LLC Have?
An LLC can have as many limited liability companies as it wants. This is called a multi-member LLC, and the members are each responsible for their own share of profits and losses.
Can Two Businesses Have the Same Name?
It depends on the state, but usually not if they are completely unrelated.
If you want to have two companies with the same name, then it is a good idea to check with your state for specific rules and regulations regarding this issue.
Is It Smart To Operate Multiple Businesses Under One Main LLC?
It depends. As a business owner, if you are trying to save money, then it would make more sense for each business to operate under its own LLC.
How to Operate Multiple Businesses Under One LLC...
To briefly summarize things up, make sure you read the fine print and double-check everything before filing any paperwork! Running multiple businesses can be complicated. One way to fix this is to have one company that owns the other companies.
That way, you do not have to pay a fee for each company. But there is a risk--if one of your companies does something bad, it will affect all the other companies too, hence why you need to choose carefully.
If you ever need legal advice, you should seek the counsel of a law firm, accountant, and tax advisor before making a decision about which path to follow when establishing many enterprises.