Today’s small business owners often earn income through a variety of ventures. For example, a restaurateur may open a wine shop or a caterer may also double as a part-time copy editor.
If you’re running multiple business projects, you’ve probably wondered what’s the best way to structure all these ventures. Should you form one corporation to cover them all? Should you form an LLC for each one?
You need to answer these questions from both a marketing and legal perspective. For marketing, you need to consider the markets and target customers for each venture. Are they synergistic? Are they relevant and will they appeal to the same customer?
If so, it makes sense to market them under a shared brand. For example, it may make sense for a restaurant and side wine shop to share the same branding.
In other cases, your businesses might target different customer types (for example, the copy editor and caterer). In this case, you want to use different websites, business names and branding for each venture.
But how do you structure multiple business ventures from a legal perspective?
How to Structure Multiple Businesses
There are three ways to legally structure multiple businesses. Each option has a different set of advantages and disadvantages – and the “right” approach depends on your unique needs. Here’s what to consider:
Option 1: Create a Separate Corporation or LLC for Each Venture
You can form an LLC or corporation for each business venture. For example, you can form an LLC for a bookkeeping business and then form another LLC for selling homemade soaps.
While this seems straightforward enough, be aware that this approach will result in considerable paperwork. You’ll need to file separate forms (i.e. annual reports, meeting minutes) to the state for each structure. And if you’ve formed corporations, you’ll need to file separate tax forms for each corporation. If you’re looking to minimize your administrative requirements, consider another option.
There’s one exception to this rule and that’s for real estate investors. If you’re investing in rental properties or other real estate, you may want to consider forming an LLC for each property in order to protect each investment on its own. Then if property “A” is sued, only the assets belonging to LLC “A” are affected. Your own personal assets are shielded, as well as the assets belonging to Property B, Property C, etc.
This is the best way to contain liability in potentially risky ventures.
Option 2: Create One Corporation/LLC and Have Multiple DBAs Under the Main Corp/LLC
Your second option is to create one main company as an LLC or corporation. Once that LLC or corporation has been established, it files multiple fictitious business names, also called DBA (doing business as) registrations, for each of the ventures within the same state/county.
With this approach, each business can have the right name and branding for their specific market, while still enjoying the legal protection of the main holding company. When it’s time to file your taxes, you can take the income earned from each DBA and report them in a single tax filing under the main LLC or corporation.
Of course, situations vary and you should always consult with an attorney or tax advisor for individual advice regarding your particular situation.
3. Create One Corporation/LLC with Other Corporations or LLCs Under the Main Holding Company
In the third approach, a holding company will own individual Corporations/LLCs for your multiple businesses. This scenario often comes into play for companies that are looking to be acquired. It also applies for those cases where an established company is looking to start a new business (and the established or holding company will fund the new business).
The particular tax and legal implications can become complex for this scenario. Consult with a tax advisor and/or attorney for the best way to structure your holding company and its subsidiaries.
Consider this overview of how to structure multiple businesses as just a starting point. And if you’re working hard to build your businesses, make sure you’re also doing everything you can to protect them.