Do you have a bunch of business ventures going at the same time? Today, it’s common for entrepreneurs to make their incomes through a variety of businesses and projects.
You might know how to handle this from a marketing perspective – for example, you’ve got completely different business names and websites for your restaurant and mobile app business. But how do you handle multiple businesses from a legal perspective? Should you form one corporation that covers everything or should you form separate LLCs or corporations for each one?
In general, there are three approaches for legally structuring multiple businesses. Each approach has its own set of advantages and disadvantages to consider. Here’s what you should know:
Approach One: Form a corporation or LLC for each business
With the first approach, you will create a separate entity (either an LLC or corporation) for each business venture. For example, you might create an LLC for your HR consulting business and another LLC for your business as a science fiction author.
This approach might seem simple and straightforward, and particularly appropriate for those types of businesses that are not connected at all (i.e. a restaurant and mobile app company). However, this approach also means there’s a lot of paperwork to fill out.
With two different business entities, you’ll have to file separate forms (Annual Reports, meeting minutes, etc.) for each business. And for corporations, you’ll also need to file separate tax forms for each corporation. Consequently, this approach is discouraged for people who don’t want a lot of administrative requirements. In addition, keep in mind that a tax advisor may advise you to combine your business ventures, so the losses of one business can offset the profits of another.
If you’re a real estate investor or involved in other risky businesses, forming separate corporations or LLCs is probably the best strategy as it shields each business’ assets from the liability of another. For example, you can form an LLC for each investment property in your portfolio. This means that if a renter sues you for something that occurred with Property A, only those assets belonging to LLC A are involved. Any assets related to your other properties/LLCs are shielded, as are your personal assets.
Approach Two: Form one Corporation/LLC, then file DBAs under the main Corp/LLC