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Navigating Multiple Businesses: One LLC, Two LLCs, or an LLC with a DBA?
In the ever-evolving landscape of entrepreneurship, it’s not uncommon for individuals to find themselves juggling multiple business ventures simultaneously. The question of whether to establish one Limited Liability Company (LLC), operate two separate LLCs, or set up an LLC with a “Doing Business As” (DBA) name becomes a critical decision. Each approach has its own set of advantages and considerations, ultimately shaping the legal, financial, and operational aspects of your businesses.
One LLC: Streamlined Management
Establishing a single LLC to encompass multiple business ventures can offer simplicity and ease of management. All of your business operations are consolidated under one legal entity, which can save you time and money on paperwork, annual fees, and compliance requirements. This approach is particularly attractive if your businesses are related or share similar activities, allowing you to streamline administrative tasks and allocate resources efficiently.
However, there are potential downsides to this approach. If one of your ventures faces legal issues or financial troubles, all of your businesses’ assets could be at risk. Moreover, combining unrelated businesses under a single LLC might lead to confusion among customers and stakeholders, as they may not immediately grasp the diverse range of offerings.
Two LLCs: Enhanced Protection and Focus
Operating two separate LLCs, one for each business, provides a higher degree of protection for each venture’s assets and liabilities. If one business encounters legal trouble, the other’s assets remain shielded. This separation can offer peace of mind and security, especially if your businesses involve varying degrees of risk.
Additionally, running distinct LLCs enables you to maintain a clear and focused brand identity for each venture. This approach can help you effectively target your market and establish a strong reputation within each industry.
However, managing two LLCs can be more complex and potentially costlier. You’ll need to navigate additional administrative requirements, including filing separate paperwork, maintaining separate financial records, and handling multiple compliance obligations.
LLC with a DBA: Balance of Identity and Simplicity
Choosing an LLC with a DBA, also known as a “trade name” or “fictitious business name,” is a middle-ground approach that allows you to maintain separate brand identities while operating under the umbrella of a single legal entity. This option is particularly appealing if your businesses are related or complementary, as it enables you to cross-promote your services under a shared LLC.
A major advantage of using a DBA is that you can centralize administrative tasks and compliance requirements. This simplifies paperwork and annual filings, potentially reducing costs and administrative burdens. Additionally, since the LLC remains the legal entity, liability protection is maintained.
However, be mindful that using a DBA doesn’t provide the same level of asset protection as maintaining distinct LLCs. Legal issues related to one business could still potentially impact the assets of the other business.
Choosing the Right Path for You
The decision between having one LLC, two LLCs, or an LLC with a DBA depends on a variety of factors, including the nature of your businesses, the level of risk involved, your branding strategies, and your comfort with administrative complexities.
Before making a choice, consult legal and financial professionals who specialize in business structures. They can provide tailored advice based on your specific circumstances and objectives. Whether you prioritize simplicity, protection, or a balance of both, understanding the implications of each option will help you make an informed decision that aligns with your entrepreneurial vision.
Question by Vivian Figueroa:
I have an LLC which started as a home dessert shop, but I have also created a clothing business. However, I have no change from that second business to selling t-shirt designs, mugs, a tumbler, and other handmade products, also from home. I have been putting both businesses under the same LLC. I really want to grow the dessert business. Actually, I think it is saying I really don’t want to grow the dessert business, but I do want to concentrate on the art and craft store. Is it better to change the LLC to the art and craft store name or open a DBA? Some places give me a hard time accepting my LLC sales certificate for things being bought by an art store with a different name. Let’s see. Both are new businesses. I have more expenses than sales, but I don’t want to give up having a business from home. Is there a tax advantage for me to have two LLCs or one DBA and an LLC?
All right. I think I would summarize it this way: If you have two businesses, should you have one LLC, two LLCs, or an LLC with a DBA?
In fact, I think what she is really asking is two LLCs or an LLC with a DBA.
Factors to Consider in Choosing a Structure
When deciding whether to have two separate LLCs or an LLC with a DBA, the key question is whether you need separate liability between the two entities. I will explain.
First off, remember a DBA is just a nickname or an alias for an entity like an LLC. A DBA is not a separate business. It is just a nickname for the business. So if you don’t need to separate liability between the two entities or between the two businesses, we will call it, you can have an LLC with one name and a DBA for that same LLC with a different name.
That way, when customers see the different names, they don’t get confused and they don’t say, “Hey, why does my receipt have a different business name on it?” It is like, “No, we have a nickname, a DBA for this LLC.” So people don’t get confused about that. An LLC with a separate DBA for a separate business is absolutely appropriate if you don’t care about separating liability.
What do I mean by that? Well, let’s say one of the businesses gets sued. Because it is all in one LLC, both businesses are exposed to risk. So if one business has bakery equipment and the other business has arts and craft equipment, both the equipment and the value of both businesses are exposed in that lawsuit.
Considering Separate LLCs for Liability Protection
I’ve got some other videos where I talk about what you can do about that besides separating them into separate LLCs.
One popular option is just to get insurance to cover everything. So you would want a separate LLC if you want separate liability. For example, if the bakery gets sued, the arts and crafts equipment and inventory are not exposed because they are in separate LLCs. To do that, you need to have separate bank accounts and you need to treat them as separate businesses. I have a separate video on piercing the veil, which talks about when one business can be liable for another and vice versa. That is called piercing the veil. The veil of limited liability between them and a creditor or someone who sues you can be pierced, and they can go after your other company if you don’t do things right. Check out that video on piercing the veil to learn more about that topic.
The other part of this question is, is there any tax benefit to having separate LLCs? The short answer is no, there is not. Because income and losses from these businesses will flow through to you, and you will pay the tax obligations once they flow through. The IRS calls this an ignored entity or pass-through taxation, which basically means everything from the business flows through to you. So there isn’t a tax benefit in having two LLCs or an LLC and a DBA. From a tax standpoint, it is going to be neutral.
All right, I’m Aaron Hall. I am an attorney for business owners and entrepreneurs.
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