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Should You Put Multiple Brands Under One Business or Keep Them Separate?
If you're considering starting a new business venture, one of the key decisions you'll need to make is whether to create a single LLC for all of your brands or establish individual companies for each brand. This is something that you'll need to decide before beginning another business because you’ll either want it sandwiched under one LLC as a DBA or a separate LLC altogether. Don't worry, we will help you make this decision and help you legally expand your business the right way!
Before you decide whether you need to open another LLC, you need to evaluate your legal liability, company size, accounting methods, overall cost, and task management before making the decision of business formation. If you're a smaller business and your liability is likely to be relatively low, it may be easier to put all of your brands together under one LLC as a way to avoid annual fees for each business. On the other hand, if you have more than one employee or business partner and lots of clients and legal liability attached to them—or your businesses are all just super separate and have differing levels of liability—it may be easier to create an LLC for each business as a way to keep everything separate and distinguish them for liability purposes.
Create Separate LLCs for Each Business
The first option is to create an LLC for each business, which is beneficial if the two brands you have are completely different ventures and have completely different clients, risks, and liabilities. For instance, if you have a photography brand and a copywriting business, you probably will want two LLCs for each type of business. This option also ensures that if, say, one brand doesn't succeed, it will not impact your other business. However, this option can lead to an increase in costs including paying annual LLC fees, filing taxes, potentially filing separate tax returns, and completing accounting for all of your brands and oversight management, especially if you're a solo owner.
Remember, when separating your brands into individual LLCs, you also need to establish separate business bank accounts and ensure that revenue from one venture is not being given to another. If you confuse revenue or losses and commingle your brands, it ultimately breaks the “LLC bubble” and makes them ALL legally liable for one another. The good thing is 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 employees or various business partners you definitely want to separate your brands into different LLCs. 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.
Create One LLC and Have All Other Businesses as DBAs Underneath
The second option is to create one LLC and establish a DBA for each brand underneath (think umbrella metaphor here). This is a great option if all of your ventures somewhat coincide with one another. For instance, if you are a photographer and videographer, it would make sense to just have both DB’s under one LLC. 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 has the ability to pull revenue from the other brands. The same goes for getting sued. You must keep in mind that a DBA recognizes your brands by different names, but legally they are still under one LLC. So in the eyes of the law, when one brand fails, all brands fail. 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.This allows you to keep revenue and profit loss from each brand separate while better-managing oversight. You can also shield each DBA with a separate insurance policy. But again, third parties will often 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 misused 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.
Finally, lots of small business owners find it helpful to have one “dummy” LLC that has a super random name with all their DBAs underneath it. The “dummy” is really just there as the legal shield, but the business itself doesn’t do anything besides be the legal entity to all the DBAs below.
In Sum: Look at Your Legal Risks and Liabilities for All Businesses
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 hesitate to seek legal counsel in your state.
Forming a new LLC can be a complex and overwhelming process, especially if you're not familiar with the legal requirements and regulations in your state. However, with the help of TLP's LLC formation guide, you can easily navigate through the step-by-step process of registering your LLC in each state. Don't wait on getting yours set up today!
Check out THIS podcast episode for information on how to use multiple names for your biz!
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.