Do you want to add another business to an already existing LLC and are unsure about whether it’s permissible or not?
Entrepreneurs often confront situations where they have several amazing ideas for a viable business to diversify their income. For example, as an entrepreneur, you run a clinic successfully and want to start a line of medical products.
With an already successful business under an LLC, you want to start this new business under the same LLC.
You may ask, what is the best way to start a new business? Or should you create a separate LLC for each business or keep all businesses under one company?
The answer is that it is permissible to operate several businesses under one LLC; however, the chances are that it’s not a good step.
Here are the possible ways and inherent advantages and disadvantages to each way.
Typically, there are three ways to run multiple businesses, and the method you choose depends on your situation.
One of the ways is to run several businesses under one LLC. Instead of creating new LLCs for new businesses, you can set up a DBA (Doing Business As) for your new business.
Its advantage is that you will run both businesses separately and accept separate payments to a specific business. But when tax time comes, you need to file one tax return for both businesses as DBA is under the same LLC.
As both of your personal assets are protected under one LLC, if one of the businesses is sued or confronts any financial problem, the other business will also be affected.
So, if you want to avoid such a situation, the best way is to go for separate LLCs for each business.
You can make as many LLCs as per your new businesses. So, there is no limit to the number of LLCs you can form.
Also, separate LLCs for each business add an extra layer of liability protection to your business. So, if one business is sued or is facing down years, there will be no threat to other businesses.
This method is specifically popular among real estate investors as it protects each investment. So, If one property is sued, there won’t be any risk to other property assets.
However, you cannot overlook its financial burden. You have to bear additional fees and paperwork. You will pay for forming an LLC and its maintenance. Separate business licenses and EINs are also mandatory for each business.
When the tax year comes, you need to file separately for every business.
The third approach is to create individual LLCs for each business and then keep them all under one primary holding LLC.
Holding company LLC is an LLC company that doesn’t carry any operations; instead, it owns other companies.
Such an approach is common for the following situations:
- When a company spins off one of its business
- When established companies start a new business and fund it
Now that you know all the possible ways to start a new business, you will be clear on what to do. Whatever method you choose, each one has its own legal and tax implications.
So, we would advise you always to consult an attorney and tax advisor to understand the structuring of your company and all businesses. Make sure to know the liability risks to avoid any misfortune.
For years I have studied the irs regulations regarding forms and taxes. All the information in this blog is sourced from the Internal Revenue Service (Irs) of the United States government .
Salesforce Certified SALES & SERVICE Cloud Consultant in february 2020, Salesforce Certified Administrator (ADM-201) and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.