When you are ready to start a new business venture, it is important to decide whether you want all of your brands under one business or to create individual companies for each brand. Each brand can be considered a business venture, and that new idea needs to find a place beside or within your current company. This is something you should decide before your business is up-and-running as it will be a key part in the formation of your new brand.
You should evaluate your legal liability, company size, accounting methods, overall cost, and task management when determining which route to go when establishing multiple brands. If you are a smaller business it may be easier to put all brands together under one LLC as a way to avoid annual fees for each business and your liability is likely relatively low. Whereas if you have more than one employee or business partner it may be easier to create an LLC for each business as a way to keep everything separated. The biggest thing you need to consider is the limited legal liability with each business—if you put each brand under the same LLC bubble then each entity is liable for all the others, and if you separate them into different LLCs then they are all only liable for their own debts and risks. There are of course benefits and downsides to each option but try to look at the situation long-term and estimate any issues that may arise.
Option 1: Create an LLC for each brand
By creating an LLC or company for each brand, you have the ability to keep the services or products separate from each other. This is beneficial if two brands you have are completely different ventures, have completely different clients, and the risks and liabilities of each are very unconnected.
For example, if you are a photographer and you want to start a catering business you’re going to have differing customers, liabilities dealing with food versus photos, and two totally separate contracts for clients . In this example, it’s wise to create two different companies for each venture because they are not within the same range of services and you don’t want your photography business picking up the risks of your new catering business (which more than likely is a more risky business due to strict food and health regulations/standards).
A downside to having multiple businesses is that you are responsible for paying fees and filing reports for all of them, individually. This can quickly increase costs and oversight management for a business, especially if they are a solo owner. This includes paying annual fees, filing taxes, potentially filing separate tax returns, and completing accounting for all of your brands. However, this may be beneficial if you are worried the new brand may not be successful. If each brand has its own LLC, only the specific brand will fail while leaving your other businesses unharmed.
Remember, when separating your brands, you will also need to establish separate business bank accounts and ensure that revenue from one venture is not being given to another. It may be easy to confuse revenue or loss with your other brands which is problematic because it ultimately breaks the “LLC bubble” and makes them all liable for one another. Moreover, when it comes time to file taxes or submit annual reports, having separate bank accounts and accounting makes it a bit easier.
Finally, if you have a few employees or business partners you definitely will want to separate your brands. Partnerships should never be intertwined with your solo business ventures. Also, having employees increases a business's legal risks, so it's best not to assume those risks with your other businesses.
Option 2: Create one LLC and establish DBA for each brand
Another option is to have one primary business and list your other brands underneath it with fictitious name statements, better known as a DBA (Doing Business As). A DBA is another name that your company can go by, like a nickname. It is a brand or service that is associated with your business but not a separate entity. You must keep in mind that a DBA recognizes all your brands as one LLC but by using different names. This allows you to put all brands under the LLC on tax forms and run your services collectively. You will not need to pay the separate annual fees, all brands will share the same profit-loss or gain for tax purposes, and all brands will share one another’s risks and liabilities. This is a great option if all of your ventures coincide with one another—such as a photography business starting a videography business—and it is easier for you not to manage multiple accounts.
However, this may be risky if (1) one of your brands turns out to not be successful and (2) one of your brands gets sued. If one business begins to fail then it may have the ability to pull revenue from the other brands. You must keep in mind that a DBA recognizes your brands by different names but under one LLC, so in the eyes of taxes or accounting all brands can fail when one brand fails. This is probably the largest downside to utilizing DBAs in your business. A way to avoid this from happening is to keep separate accounts for each brand, internally, so if something happens you are properly budgeted and prepared to mitigate any financial risks. It allows you to keep revenue and profit loss from each brand separate while better managing oversight. But again, third parties will not recognize this tactic so you should consider all financial risks of your new brand before adding it as a DBA to your existing business.
Additionally, if one of your brands ends up in a lawsuit then all the brands under that LLC share in that liability. So, say your videography business was sued due to your drone being used improperly and hitting a home, then your photography business would also be on the hook for any damages that occurred and could be dragged into the lawsuit. It's best to weigh whether your risks are small enough with all brands that they can easily be assumed by the overall umbrella of the LLC or whether you should separate those risks.
If you want more information about registering a DBA, here is a list of every state’s Secretary of State website regarding DBA regulations and processes!
Whichever method you choose is perfectly fine and legal! However, it is vital for you to logistically look at your risks and liabilities, staff-power, and financial stability before making a decision. If your new brand poses a significant legal or financial risk then you should lean towards making it into an entirely different entity. Remember, you can put as many DBAs as you want under your LLC and do not have to stick to the same method for each brand. If two brands feel safe and the other risky, then put two as DBAs for your current LLC and make the other its own entity. As always, if you need more help in making this decision or setting up DBAs, do not be hesitant to seek legal counsel in your state.
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.
