Can One LLC Have Two Businesses?

As an entrepreneur, the idea of starting a second business can be exciting, but it also raises many questions. One of the most common questions is whether it makes sense to have two businesses under one LLC or if it’s necessary to create another LLC.

In this article, we’ll explore the concept of having multiple businesses under one LLC and provide you with info on how ZenBusiness can help you stay organized, compliant, and focused on growing your business.

Can I use one LLC for two businesses?

Yes, you can have multiple businesses under one LLC. This is a common strategy used by entrepreneurs who want to streamline their operations, reduce costs, and simplify their tax filings. However, it’s important to keep in mind that there are some limitations and regulations that you’ll need to be aware of before you proceed.

Separate LLCs

Creating a separate LLC for each business is one option. This approach has the benefit of keeping each business’s liabilities and assets separate from the other. For example, if one business is sued, the assets of the other business aren’t at risk. Additionally, separate LLCs can help you better track each business’s profits and losses.

When to Have Separate LLCs

Separate LLCs might be a good option if the two businesses are in different industries, have different risk profiles, or if they require different management structures. For example, if you run a construction business and are starting a software company, you might want to consider creating a separate LLC for the software business. The software business likely has different risks and requires different management structures than the construction business.

Parent LLCs or Holding Company

Another option is to create a parent LLC or a holding company. This approach involves creating a new LLC that owns the two businesses. The parent LLC can provide some benefits, such as centralized management, shared resources, and shared liability protection.

When to Have a Parent LLC

A parent LLC might make sense if the two businesses are related, have similar risk profiles, or share resources. For example, if you own a catering business and are starting a food truck business, a parent LLC might be a good option. Both businesses are in the food industry and can share resources, such as employees and equipment.

Series LLC

A series LLC is a type of LLC that allows you to create separate “series” within the LLC. Each series operates as a separate entity, with its own liabilities and assets. The primary advantage is that each series is shielded from the liabilities of the others. However, only a small number of states allow series LLCs.

This approach can be beneficial if you have multiple businesses that operate in the same industry or have similar risk profiles. It’s often used for property management companies that manage multiple properties and want to ensure the liabilities of one property don’t affect the others.

Benefits of Running Multiple Businesses Under One LLC

There are several benefits to running multiple businesses under one LLC, including:

Simplified Tax Filings

Instead of filing multiple tax returns, you can file a single tax return for your LLC, which can save time and money.

Reduced Costs

Having multiple businesses under one LLC can reduce the costs associated with forming and maintaining separate entities. By consolidating costs, businesses can save money and allocate resources more efficiently.

Easier Management

Running multiple businesses under one LLC can make it easier to manage operations, resources, and finances.

Risks with Two Businesses Under One LLC

If you decide to operate two businesses under one LLC, it’s important to understand the risks involved. One of the biggest risks is that if one business is sued, the assets of the other business are also at risk. Additionally, it can be challenging to keep track of each business’s profits and losses, which can lead to confusion and tax issues.

Increased Risk to All Business Assets

In case of any lawsuit against one business, all the assets of the LLC, including the assets of the second business, can be used to settle the liabilities.

Example: If one business faces a lawsuit and is ordered to pay damages to the plaintiff, the assets of both businesses could be seized to pay the damages.

Legal and Tax Confusion

Operating two businesses under one LLC can lead to confusion regarding legal and tax obligations, which could result in costly mistakes.

Example: In a tax audit or legal issue, it can be challenging to determine which business is responsible for what tax or legal obligations.

Risk to Limited Liability Protection

The limited liability protection offered by an LLC can be jeopardized if two businesses are operated under one LLC.

Example: If one business is sued and the court decides that the two businesses are so intertwined that they should be treated as one entity, then the limited liability protection of the LLC could be invalidated.

Difficulty in Obtaining Business Financing

Having two businesses under one LLC can make it more challenging to get financing as lenders may be hesitant to loan money to an LLC with multiple businesses.

Example: Lenders may view the LLC as having a higher risk due to the presence of multiple businesses, which could result in higher interest rates or outright loan rejections.

Operational Challenges

Managing two businesses under one LLC can be challenging due to the potential overlap in operations, conflicting goals, or limited resources.

Example: If both businesses have overlapping clients or vendors, it could lead to conflicts of interest or other operational challenges.

Overall, there’s no one-size-fits-all answer to whether you should have two businesses under one LLC or create separate LLCs. It depends on your specific situation and the unique characteristics of each business. ZenBusiness can help you navigate the complexities of LLC formation and provide ongoing compliance services to keep your business in good standing.

Other Considerations: DBA Names

Another consideration when running multiple businesses under one LLC is the use of “Doing Business As” (DBA) names (known in some states as trade names, assumed names, or fictitious names). A DBA name lets you to operate a business under a name other than the legal name of your LLC. This can be useful if you want to differentiate the businesses or create a separate brand identity for each one.

When using DBA names, it’s important to keep in mind that each name must be registered with the appropriate state and/or local agency (depending on your state). Failure to properly register DBA names can result in fines and legal issues.

Before deciding to use DBA names for your multiple businesses, it’s important to weigh the benefits and drawbacks. While DBA names can be a useful tool for creating separate brands, they can also add an extra layer of complexity and administrative tasks. Consulting with a legal or tax professional can help you make an informed decision about the use of DBA names for your LLC.

How to Run Multiple Businesses Under One LLC

To run multiple businesses under one LLC, you’ll need to follow a few simple steps:

Register your LLC with the state: If you haven’t already registered your LLC, you’ll need to do so. This involves choosing a name, appointing a registered agent, filing your formation documents, and obtaining any necessary licenses or permits.

Draft an operating agreement: An operating agreement is a legal document that outlines the ownership structure and management of your LLC. It should include details on how you’ll manage multiple businesses and how profits and losses will be allocated.

Get an EIN: An Employer Identification Number (EIN) is a unique identifier issued by the IRS. It’s required for tax filings and is often needed when opening a business bank account.

Keep separate books and records: While you can run multiple businesses under one LLC, it’s important to keep separate books and records for each business. This will make it easier to track income and expenses and will help you stay organized.

Comply with state regulations: Each state has its own regulations regarding LLCs, so it’s important to stay compliant. This includes filing annual reports, paying taxes, and maintaining a registered agent.

We can help!

At ZenBusiness, we understand the challenges of managing multiple businesses under one LLC, and we’re here to help. Our platform provides a personalized dashboard where you can store important formation documents, receive state compliance alerts, and manage a domain name and website for your business.

We offer a range of services, including Worry-Free Compliance, obtaining an EIN, using a registered agent service, and much more. Plus, our accuracy guarantee helps ensure that your formation documents are filed correctly and on time.

With ZenBusiness, you can focus on growing your business while we handle the details. Contact us today to learn more about how we can help.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.