Most entrepreneurs are curious, goal-oriented, and never satisfied with what they have and where they stand. This is the reason why business people with multiple companies under their belts are typical in the business world. A restaurant owner may opt to set up a winehouse, while a personal trainer would be happy to start a fitness apparel line. New opportunities pop up like mushrooms and income diversification looks like a reasonable strategy if you own multiple businesses. So, the obvious question is how can you do it best and what multiple business structure is the most suitable one for business owners.
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If you think of starting a 2nd company or happen to own multiple businesses you may be curious what the best way to legally structure each business is:
- Should you own separate companies for each business entity or set up an umbrella company to own multiple businesses?
- Are there any limitations as to the number of businesses an entrepreneur is allowed to set up and own?
NB: feel free to structure multiple businesses in 3 different ways. Each approach comes with its own advantages and drawbacks. With this in mind, deciding what structure will work best for you if you opt to set up a company with multiple businesses should be on a case-by-case basis.
1. Setting up separate businesses like LP, LLC, or Corp S
Remember, there are no limits as to how many corporations, partnerships, or LLCs a person may set up. To establish a startup, entrepreneurs often prefer to incorporate a new LLC or Corp S for each startup they are about to set up. If willing to start a landscaping business, you may establish an LLC for it and another LLC for the golf course you purchased.
The main benefit of the approach is that it isolates risks for each separate business. If a customer sues the landscaping business, the golf course business remains protected.
The main drawback is that the approach provides for additional service charges for maintaining several legal entities and is bound with huge amounts of paperwork. You will have to pay LLC incorporation or setup fees in case of each business as well as all annual charges and stamp duties. You will need to get individual business licenses and EINs for each business and submit tax forms for each corporation. The extra paperwork may be a burden for some entrepreneurs and business people. Yet, the difficulties are the price most businessmen are ready to put up with in order to protect each business from the risks the other ones may face.
Real estate investors often incorporate LLCs for their individual assets to protect each investment of theirs. If Asset A is sued, the owner’s Asset B or Asset C is not threatened.
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2. Managing multiple businesses under one LLC or corporation
Another popular option is to set up a partnership, a Corp S, or an LLC and then set up several DBAs (Doing Business As) to come up with fictitious names for each business line. You may establish an LLC for the landscaping business you own. If you decide to engage in a golf business, your LLC may register a DBA for the Golf Course. In a marketing context, you may run each business as if it were a separate company. It means using an individual name for each business, accepting checks made out to each business name, etc.
Where a corporation, an LLC, or a partnership files for a DBA, the state allows the business to use a different company name for its purposes.
A fictitious name certificate does not serve to establish an individual business structure, hence the business line operating under the DBA is a part of the business structure that filed for the DBA.
You are not authorized to sell your LLC shares, Corp S stock, or partnership rights in the partnership for a business line operating under a fictitious name. Should you decide to sell a business line that operates under a fictitious name you will have to do it under an asset sale and purchase agreement as the buyer will only get a part of the business corporation.
With the above approach, each business may use the right branding and company name to make annual maintenance simpler. You will pay annual maintenance fees for a single company and not each individual DBA. Another advantage is that you will need just one tax ID to file taxes for your EIN. When the time arrives to submit a tax return, you may sum up the income from each business line and report it under a single tax return for your principal LLC or corporation.
Each business entity (a.k.a. DBA) is legally protected as a part of the LLC or the corporation you own. Should something happen to any of the business lines (i.e., DBAs), the owner’s personal assets will remain shielded as before. Mind that this is true if the DBA is incorporated under your corporation or LLC. FYI: beware, DBAs are not shielded from each other. With this, if the landscaping business (DBA) is sued, the golf DBA will be liable as well.
Before you make up your mind to set up a business overseas, consider picking up the jurisdiction that will work best for your business type. With the International Wealth valuable info as to Top-10 Countries for Startups and Startupers, you are guaranteed to make the right choice.
3. Holding company incorporation
A third approach presumes that individual companies will be set up for each business to be later on put them under a single holding company like an LLC or a Corp S.
In several situations, the above scheme is widely used:
- for a company about to be turned into a subsidiary or a spin-off company by its owner
- for an established business ready to set up a new company and finance it later on.
Since the scenario may have complex legal and tax consequences, you’d better consult a lawyer or a tax consultant on the subject and select the best method to structure your holding company and its subsidiaries.
A holding company also known as an umbrella or a parent company is a corporation that holds the majority (a.k.a. control) stake in a single business or multiple businesses. Its only purpose is to manage subsidiaries.
The other structuring option for multiple businesses is to set up separate companies for each business line and unite them under a single holding corporation. Such holding companies may finance new businesses and shield assets for each individual business.
Where a holding company controls multiple companies, each subsidiary is an independent legal entity. It is highly beneficial if a subsidiary is sued. In this case, no other holding subsidiaries are liable for the claim with their assets. Moreover, if a subsidiary facing the claim acted independently the parent company is not liable for its actions.
How to own multiple businesses and structure them under one roof
Can you own multiple businesses and have little or no headache managing them? If your business expansion plans provide for adding the like business lines to the existing business or the company you are about to set up, use the below procedure to do it:
- Select a legal entity you are about to establish:
- limited liability company (LLC)
- corporation (Corp S or Corp C)
- Find out whether the trade name you would like to use is available in the target jurisdiction.
- Where the trade name is available to register a trademark, consider applying for the above trade name after the business launch.
- Incorporate the chosen legal entity in the jurisdiction you picked and set up bank accounts for it. If the legal entity in question is an LLC, you shall draw up an operating agreement. If you decide in favor of a corporation, get ready to submit founding documents therefor.
- Get a tax EIN for the legal entity.
- Apply for fictitious names for each business line you are about to run or operate under the business entity established.
Tax implications for multiple businesses under one corporation
Although with multiple businesses under their belt an entrepreneur may be separately liable for company liabilities and any claims made against them won’t apply to either their personal assets or the other business lines, certain tax implications do occur.
Partnerships, LLCs, and Corps S come with pass-through taxation.
Corp C is taxed at the entity level. Individual taxation occurs when dividends are paid to certain Corp C members.
When selecting a legal form and status for your business, you should carefully consider all potential tax implications regardless of how many businesses you may own. If you feel like a consultation with industry pros may come handy, go ahead and message the International Wealth experts at firstname.lastname@example.org.