How Should I Structure Multiple Businesses?
On Jan 27, 2019, B. asks:
If you create another LLC business under the main LLC does it need a business account? or how is this all structured? and how many LLCs can be under just one?
If you create another LLC business under the main LLC does it need a business account or how is this all structured and how many LLCs can be under just one.
If you have multiple business ventures, there are a few different ways you can structure it. The most common ways though would be:
1) Use a DBA for each venture (Think "One House, Many Rooms")
2) Create a parent company with subsidiaries (Think "One Property, Different Buildings")
Both of these approaches have their advantages and disadvantages, so I'll break down a few considerations for you here:
Use a DBA for each venture
This is going to be the most straightforward approach. A DBA stands for "Doing Business As" and is a way for you to operate multiple companies all through a single company. With a DBA, you're essentially saying "My company name is MainCompany, but I'm also recognized as AnotherCompany." With a DBA in place, you can accept payments as AnotherCompany and generally operate with the names being interchangeable.
However, the big downside of operating this way is that all of the ventures share liability. So, if one gets sued, the entire organization is being sued. Additionally, if you ever want to sell off one of the ventures, it may be difficult to separate things.
- Low cost
- Easy to set up
- Shared liability
- Difficult to separate later
Create a parent company with subsidiaries
In this approach, you have your holding company. The holding company doesn't conduct any business; it just holds all of your assets. Then, for each venture you have, you create a subsidiary entity. The parent company owns 100% of each one. They would all have separate bank accounts, tax id's, etc.
The parent company with subsidiaries approach is how many real estate organizations are set up. There's a main holding company, and then each property is set up as it's own legal entity.
If a legal issue were to arise with one of them, it's contained to just that company (in almost all cases). However, you will have much more work and expense as you have to register and manage each entity separately.
- Better liability protection
- Easy to sell off pieces of the business
- More expensive
- A lot of work to set up and maintain
So, the choice will be up to you depending on what your goals are. If you don't have substantial assets and are just getting started, the DBA approach might be an easier road for you.