3 Ways to structure multiple businesses
Multiple Business Structures
It’s very rare to come across an entrepreneur that has only one great business idea. Most, have a list of business ideas hiding away in some random notebook or in a forgotten computer file, who knows where. If you are able to locate that list of wonderful money-making ideas, there’s good news, you’re not limited to implementing just one. There is no limit to the number of companies one can form. Whether this is your first startup, you’re thinking about starting a second business, or perhaps you are already currently in the process of running multiple businesses; diversifying your income is a wonderful strategy for growing your brand and financial success.
Let’s examine multiple business structures a little so that we can help you in choosing a structure that works best for you and your business. Generally speaking, there are three different ways to structure multiple businesses: one can create individual corporations/LLCs/partnerships for each business, create fictitious names/DBAs under one corporation/LLC, or a holding company can be formed in which all businesses operate under. There are advantages and disadvantages to each approach. Here, we will explain and offer some general knowledge for you to consider. You should always discuss your specific needs, the details of your business, and its goals with a qualified attorney.
1. Creating Individual Corporations
Since there is no limit to the number of corporations/LLCs a person can legally form, many business owners choose to file articles of incorporation for each individual business venture. However, having separate business entities can prove to be an expensive undertaking. Each business is responsible for paying its own incorporation fees, will be required to pay state maintenance fees, and the individual corporations will file separate taxes and pay a CPA per business for its tax filings. If that doesn’t put one off, the paperwork alone may do the trick. You will be bombarded with forms of incorporation, annual maintenance forms, business licenses, and EINs, as well as tax forms for each one of your companies. As overwhelming as all of that may seem, the additional fees and paperwork are well worthwhile to many entrepreneurs who value the protections that come with keeping their business entities separate from one another. This separation isolates the risk to the individual businesses, shielding each from financial losses, lawsuits, and other liabilities, protecting the individual corporations’ assets.
2. Fictional Names Or Doing Business As (DBA)
Another, and quite possibly more simple, way of structuring multiple business entities is to file one corporation/LLC and then set up multiple fictional names or DBAs. When a corporation/ LLC/partnership files for a DBA, the state gives permission to the business to use a different name. A fictitious name is not the same as an LLP it simply allows a business owner to legally operate under a trade name, rather than the business entity’s legal name. Using DBAs has the advantages of having the protection of the main corporation/LLC or partnership, privacy protection, simplified fees, and paperwork, a shared EIN, and at tax time you’ll only need a single tax filing under the main corporation/ LLC/ partnership. While this structure model may offer great ease and simplicity, it is important to consider its disadvantages as well. DBAs lack exclusive rights to their business name, have less liability and legal protections, selling one of the lines of business may be challenging – especially if the business books were not kept separate from one another, and no LLC member shares or corporate stocks can be sold.
3. Holding Company
A holding company – sometimes called an “umbrella” or “parent” company – is usually a corporation that owns a controlling interest in one or more companies. Its sole purpose of existence is to manage the companies under its umbrella, called subsidiaries. Another option for structuring multiple businesses is to create individual corporations/LLCs for each of your businesses and put them under one main holding corporation/LLC. The holding company can fund new ventures and protect the assets of each individual business. When a holding company controls several companies, each of the subsidiaries is considered an independent legal entity. This is hugely beneficial in that, if one of the subsidiaries were facing a lawsuit, there would be no rights to claim the assets of the other subsidiaries. Furthermore, if the subsidiary being sued acted independently, the parent company would not be held liable either. It is important to consider, the workings of a holding company can have extremely complex tax and legal challenges, so it is always best to work with a knowledgeable attorney to determine the best way to structure a holding company and its subsidiaries.
Sifting Through The Muck With An Expert
Having multiple business ventures can be both exciting and overwhelming. Attorney Matthew Rossetti is an expert when it comes to entity planning, selection, and formation, contracts and agreements, dynamic equity agreements, arbitration, and mediation, as well as Chicago’s own Slicing Pie authority. Helping you sift through the complex nuances of entrepreneurship is a task he performs with skill, precision, and one that he does not take lightly. Having a clear understanding of your business needs and goals, Rossetti is prepared to assist and advise you. He will cover all of the bases ensuring the protection of your and your businesses. Working together, you will create a solid strategy that will bring your visions of success to fruition.