Your queendom is growing!
This amazing reality may leave you feeling a little starry-eyed, and overwhelmed. As your house of brands grows, so does your impact, and so does your responsibility.
Amidst all of the joy of your expanding empire, we want to make sure you’re staying in the clear with how you structure things.
A common question we get from fempreneurs like yourself is:
Should I house my brands under the same LLC? Or use different LLCs?
It’s an important question, and there are some details you need to have in hand to answer it.
Read on to gain some clarity into how to venture into fresh territory… the right way.
Realize you need a chorus of people whose word you trust? We understand that instinct. It’s why we started The Legal Legacy Lounge™, a place to gather, connect, and grow. Learn more about it here.
Advantages of an LLC
First, if you don’t have a limited liability company (LLC), open this to read next: At What Point Do I Need an LLC For My Business? That will define all of the very basics and help you plan an initial framework.
Having an LLC is advantageous for a few reasons:
- Personal liability protection
- Tax benefits/reporting options
- Easy to start
- Minimal paperwork
- Management structure options
- Minimal owner restrictions
- Business credibility
If you run an online coaching business, creative business, start-up, or similar, you probably have or want to form an LLC.
To illustrate your LLC options, let’s consider some of the female powerhouses in The Legal Godfairy community. Someone like Tamra. Tamra was the CEO of a large, multinational corporation. She decided to take all of her brilliant leadership skills and start a corporate coaching business. Providing 1:1 coaching sessions for executives in the corporate world, she has a high-impact, highly fulfilling business, operated as an LLC.
Tamra also has a personal passion for brand development. She’s exceptionally skilled at all of the little nuances that comprise a beautiful brand, and has had the opportunity to either contribute to new branding with start-ups or coach companies through rebranding. It’s a different business that pulls from different lead sources, and offers different products than her coaching practice.
A multi-passionate entrepreneur like Tamra may be ready to birth a new brand, and there are a few ways to do it.
What is an LLC Holding Company?
One option for someone in Tamra’s stilettos is an LLC holding company.
Simply put, an LLC holding company is an LLC that is set up as a holding company and does no business itself. It functions as a parent business entity to subsidiary companies, or operating companies. The holding company can own all or part of the subsidiaries.
It’s a way to run multiple, different businesses with singular oversight.
Operating Multiple Businesses Under One LLC Holding Company
You can run two, three, four, or more businesses under one LLC using a holding company. The value of this is that you keep separate LLCs independent from one another. This protects all of your high-value assets if you face any kind of legal challenge, adding in a kind of “firewall” protection that keeps damage from spreading.
Registered “Doing Business As” (DBAs)
A second option is to run your businesses beneath an LLC by registering DBAs, or “doing business as” companies.
Let’s say Tamra’s first company is called “In-Sight” and her new company is called “In-Love.” As she develops this second business, she may choose to form a holding company that will control both her business coaching company and her branding company.
Alternatively, she may choose to rework her entire infrastructure, creating a single LLC and then having In-Sight and In-Love as registered DBAs in which she operates those distinct tasks and transactions.
Remember: a DBA is not a separate entity, and there are some pros and cons to doing business this way:
Pros of a DBA
- Stay legally compliant
- Have privacy protection
- Enable targeted branding
- Low cost
- Versatile (use fictitious names rather than creating new entities)
Cons of a DBA
- May have fewer liability protections, since it isn’t in fact a separate entity
- You may not have exclusive rights to the business name
- You may have fewer tax benefits
- There is ongoing maintenance
Multiple LLCs Versus a Single LLC
Not every method of operation is the right choice for every #SHEO out there, so let’s pro and con it for a minute.
Pros of Multiple LLCs
- Limits potential liability risk because they are distinct entities
- May make it easier to attract investors to one of the LLCs, or to sell one of your businesses in the future
- They are easier to split
Cons to Multiple LLCs
- Taxes can become increasingly complicated the more you have
- It is highly flexible and can introduce risk because of the large capital base
- Filing fees will increase
Pros of a Single LLC
- It provides standard liability protection with minimal fees and paperwork
- It is very simple and inexpensive
- Transferability of ownership is easy
Cons to a Single LLC
- All of your risk, for all of your business activities, are in one place
- It may provide insufficient accommodations for the complexity of your ownership, operational, or tax requirements
Our take: in the opinion of these Legal Godfairies, the litmus test is whether your brands are completely different and the risks and liabilities of each are unconnected. Here’s what we mean: let’s say you have a small candle-making business, as well as a thriving marketing agency, it would make sense to separate those risks. If a candle burns someone’s hand, for example, and a lawsuit ensues, both the candle-making business and the marketing agency would share the liability and be on the hook for that lawsuit if there’s no legal separation between these two distinct brands.
In other words, if you’ll use a different name and logo, sell different products and services, have different clients, have different teams and ops, it probably warrants separate LLCs, independent from one another.
Aside from legal liability, you should also consider the overall cost, the size of each business, accounting methods, as well as your own personal risks and financial stability. If you need more guidance, you can always reach out to legal counsel in your area.
LLC Bubble of Protection
LLCs create a “bubble of protection” if set up and maintained correctly. So it’s important that this infrastructure is reflected in how you set up and handle operations.
Finances — One of the easiest ways to maintain this protection bubble is to establish separate bank accounts and avoid co-mingling funds between businesses or with your personal finances. Maintaining separate personal and business dealings is imperative to avoid potential legal disputes in the future. Plus, this will help you to track expenses, identify which income belongs to what line of work, and ensure no personal expenses are charged to the business’ bank account.
Employees and business partners — As your business grows, so will the number of employees and business partners you have. This increases your business risks too, which is when you have to think about separate LLCs to give each distinct company its own “bubble.”
If the LLC bubble of protection pops — because you make a mistake or face an external disruptor — you’ll land in legal hot water, with everything at risk.
Legal Tools for Your Growing Business
Let’s just take a moment and appreciate the fact that your passions are growing enough to have this conversation.
There is no feeling like having birthed a brand, and the fact that you could have more than one is truly a miracle. We aren’t surprised at all; we’ve always believed in you.
We also believe that every queen needs her team, and that includes having your legal house in order as your impact line reaches further into the world. From expertly crafted legal documents and contracts to a community of enthusiastic supporters, we are here for you.
*Disclaimer: This blog post has been prepared solely for general information and educational purposes. It is not intended to provide, nor should it be relied on for, legal advice. Should you require advice regarding a specific matter, appropriate legal or other professional advice should be obtained.