For many small business owners, forming and operating one LLC is plenty to keep them busy. However, the trajectory of a business can change rapidly or over time, and luckily, small business owners have the option of expanding and forming multiple LLCs as a way to branch out, try something new and even mitigate potential liability concerns.
Creating multiple LLCs is also a telling sign that you are doing something right as a small business owner. Perhaps you want to explore a new revenue stream through a different product or service that does not quite fall under your current company’s offerings? Or maybe you want to try out something new and not risk the standing of your current business?
There are many reasons why business owners opt to have more than one company. Here, we'll look at three strategies in creating more than one business, as well reviewing some of the key benefits and disadvantages.
Owning One LLC with Multiple DBAs
Can you own more than one LLC? This is a question that many business owners ask at some point in their working lives. The simple answer is yes. As long as the rules of the county, city and state are followed and the obligations of entity formation are met, business owners can form and operate multiple Limited Liability Companies (LLCs).
However, what works for one business may not suit another. So let’s start simple and see how one LLC can own more than one business. In this case, this is accomplished by branching out through DBAs rather than creating additional LLCs.
A DBA, short for “Doing Business As,” allows your company to legally conduct business under a different name. Also called a “fictitious,” "trade" or “assumed” name, a business may opt to register as a DBA if the product or service deviates from the name or original purpose of the LLC.
For example, if you owned a brick-and-mortar butcher shop and now wanted to start a BBQ catering business, you can register your catering business as a DBA under the LLC that you formed for the butcher shop. If at some point you wanted to sell meat online, then you could create another DBA and operate as an online business. The two new businesses can now market and advertise under an assumed name other than the name of the butcher shop.
The advantage under this scenario is that all three enterprises have liability protection under the LLC. Filing for taxes is also less complicated. The negative is that the catering business and the online business are not separate from the butcher shop, so if there is a legal action against one of the businesses, the other two may be on the hook to cover any outstanding debts and liabilities.
Another thing about DBAs is that unless the company and product names are trademarked, there is a risk that other businesses may use the same name. And nothing can keep another business from using the same name if it’s based in another state that you are not registered in.
When it’s time to file taxes, the business owner can report income for the LLC and the two DBAs on the same tax filing. In this scenario, all three businesses can file under the same Employer Identification Number (EIN), making accounting less complicated.
Do I Need a Separate LLC for Each Business?
As discussed above, business owners can have one LLC and meet their expansion needs by forming multiple DBAs. There is also nothing holding back a business owner from forming multiple LLCs. In fact, following this second strategy may resolve the risks of having one LLC with multiple DBA all under the same asset liability. Having multiple LLCs would mitigate the risk of having the liabilities extend to the other business, which, in essence, creates a protective buffer for the other businesses.
This approach, however, could be costly. Forming numerous LLCs can be expensive as each LLC will require formation fees, annual renewal costs, Registered Agent charges, as well as paying for bookkeepers, accountants and tax preparers for each LLC that will need to file separately during tax time. Formation fees will vary depending on the state, and some can be quite expensive.
Forming multiple LLCs also means that each entity will need its own Operating Agreement, management structure and Articles of Organization and will need to fulfill all the other requirements of the state, including publishing public notices. Each LLC must also have its own EIN, bank accounts and any licenses and permits required by the businesses.
And again, it’s worth mentioning that the key advantage here is that each is independent from the other businesses and not susceptible to any spill over liability if one of the businesses were to owe money or file for bankruptcy.
How Do I Run Multiple Businesses Under One LLC?
One way to organize multiple LLCs is by forming a Series LLC, also commonly referred to as a parent or umbrella LLC. The key difference that a Series LLC has from a regular LLC is that it is created solely for administrative purposes and it does not directly run any of the LLC businesses.
This means it does not offer a service or product and does not manufacture or distribute any merchandise. Rather, a Series LLC manages the assets of the other operations, including buildings, vehicles and assets and allows them to oversee the LLCs it presides over. LLCs that operate under a Series LLC are called “child” LLCs.
One example illustrating the benefits of a Series LLC can be found in the real estate industry. A Series LLC can manage separately formed LLCs in an effort to minimize any potential liability and to limit the liability to the individual “child” LLC. This action helps insulate the other LLCs under the Series LLC and protects them from the risk of liability brought against one of the other companies within the organization.
Series LLCs are only available in certain states, so be sure to check with your Secretary of State. However, if they are available, having one does come with a number of advantages, including:
Liability Protection: A Series LLC gives you the ability to completely separate each entity and minimize the risk of liability. For example, if one business is unable to pay its debts, the other businesses will not be sued by creditors. This will also allow for the business to file for bankruptcy without affecting the other LLCs.
Consolidated Management: Although each LLC will have its own management team to run the day-to-day operations of the businesses, a Series LLC will take a more strategic approach and look at the long view instead of simply managing the immediate concerns of each business. This gives them flexibility to plan for future growth and mitigate potential problems.
Ability to Raise Money: As the parent company, a Series LLC can raise money from their businesses or even sell equity in these businesses. The assets of the “child” LLC also make it easier for the Series LLC to acquire loans and funding from banks.
The disadvantages of having a Series LLC can be broken down as follows:
Cost and Expenses: Managing multiple LLCs also includes paying from their formations, annual fees and any additional expenses associated with maintaining an LLC. In addition, each entity would need to file for taxes separately. This means having separate bookkeeping costs and tax preparing and filing fees.
Management Issues: One of the main responsibilities of a Series LLC is in choosing the directors and managers of the individual companies. (Remember: a Series LLC does not create, distribute or provide any service. They just manage the LLCs.) This means that there is now a whole new level of management above the individual "child" LLCs and a greater risk of disagreement as well as conflicting management styles and visions.
Complexity: Holding companies can manage several LLCs, which means making sure that there are more compliance concerns and regulations to follow at the local, state and federal level. Important documents will need to be organized and maintained, and more importantly, kept separate and within each "child" LLC.
Although a Series LLC can be complicated, it is ideal when it comes to managing multiple LLCs...as long as you stay organized. Although the Series LLC does not conduct any “business,” its key role is to mitigate risk and manage the individual LLCs so that they run effectively and efficiently and contribute to the success and health of the parent organization.
Supporting Your Expansion Needs
Whether you are ready to form your first LLC or are interested in expanding the business and diverging in new directions through DBAs or a Series LLC, it’s important to have the right help. Choosing the wrong strategy for your business can prove costly and also become a distraction to your growth plans. Incfile has been helping small business owners and entrepreneurs since 2004. Over 1,000,000 business owners have used Incfile for their LLC formation and DBA registration needs, as well as meeting all compliance requirements and annual filings.
Our $0 + state fee LLC is a simple way to get started now and let Incfile take care of all the paperwork.
Peter Mavrikis is an author and editor with over 25 years of experience in publishing. He has worked as the Editorial Director for Barron’s Educational Series, as well as Kaplan Test Prep, where he ran the test prep, foreign language, and study guide divisions. Peter has also written several books on history, exploration, science, and technology.