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After forming your LLC, you may be interested in running a different type of activity within that same business. Structuring multiple businesses under the same LLC is doable and may be an advantageous move depending on your circumstances. There are, however, some drawbacks to consider before deciding not to set up a separate LLC for your new business.
How to Run Multiple Businesses Under One LLC
There are essentially three ways to structure multiple businesses, each with its own advantages and disadvantages.
The first option is to form a separate LLC for each business activity. This method involves filing separate forms for each business, from formation to annual reports. Although this method appears to be the most obvious and straightforward way to operate multiple businesses, it involves a substantial amount of paperwork and fees for each business. This can be especially burdensome in the early stages of your business when profits may not justify these additional costs and time commitment.
The second method is to form a main LLC (a holding company) and file DBAs (or fictitious business names) under the business entity for each additional business you operate. By doing this, each business would have a different name for their respective market and still enjoy legal protection of the main holding company. Filing DBAs under one business entity would allow you to also file taxes under the same tax ID number. However, this mingling of your businesses would put all business assets at risk if there is a liability action.
An alternative would be to create one LLC and then create additional LLCs to be owned by the initial company. The main LLC in this structure would be considered a “holding company,” a company created solely to own and control assets and management of the other companies within its possession. The holding company LLC doesn’t have any operations and exists only to own the other LLCs. This strategy is the most legally complex, but affords the most protection. The holding company provides limited liability to you as the business owner and to the other LLCs it holds. The operating LLCs themselves provide limited liability protection to the owner, so the protection of this entire structure is two-fold.
What are the pros and cons of multiple businesses in one LLC vs multiple LLCs?
Some advantages to running multiple businesses under the same LLC include:
- Running your new venture under an existing LLC initially simplifies the process.
- Easy to test business models, products, offerings, etc.
- There are no additional filing expenses for a second LLC formation and annual report.
- Operating multiple LLCs may also complicate how you file taxes.
Some disadvantages to operating under the same LLC include:
- The liability risk could be greater. The assets and income of each business are no longer isolated from each and each is at risk of any legal claims arising that might be directed against the other.
- As your business grows, it may be more difficult to keep track of finances and recordkeeping for both businesses.
If multiple businesses are run under an LLC, does each business need to have its own DBA?
Filing a DBA (Doing Business As) officially records an alternate name used in your business operations.
While you are not required to file a DBA (Doing Business As) for additional businesses under your LLC, you may prefer to register for each different business activity.
When is a Series LLC better than running multiple businesses under one LLC?
A Series LLC provides the same benefits as an LLC, but enjoys greater flexibility and simplified administration. Only a few states (Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Wisconsin, and Wyoming) allow a single LLC to house multiple separate entities as a Series LLC, meaning that both the holding company and operating entities can be formed within a single LLC. Commonly used for real estate holdings, each unit of a series can have separate owners and incur its own assets and liabilities. Establishing a Series LLC to administer your many businesses is advantageous in that the risks and liabilities that impact one LLC won’t impact the other entities in the series.
If your businesses currently operates or you anticipate expansion to different states, a Series LLC may not be recognized in a new state, so it is important to keep this in mind before establishing a series structure for your multiple businesses. If you are in a state that does not recognize the Series LLC, then a Holding LLC is the closest alternative structure.