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Thread: Multiple Business Entities or One Umbrella Business Entity?

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    Post Impressionist Array vangogh's Avatar
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    Default Multiple Business Entities or One Umbrella Business Entity?

    In the last few months I've started branching out and started to set up new sites based around different business ideas.

    Does anyone know the pros and cons of having each site and business be its own business entity or having one umbrella business that all the other businesses fall under?

    I'm inclined to think having one business entity is best and then having each of the businesses be a part of the overall business, but I'm wondering what the advantages and disadvantages to each setup would be if there are any.

    Thanks.
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    Queen of the Forum Array KristineS's Avatar
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    The company for which I work has done both. We have had entirely separate businesses, which weren't even supposed to be associated with each other in any way. The problem with that sort of set up is that if a business doesn't do as well or needs to be dissolved, it's more difficult to do.

    For this round of businesses, an umbrella company was created and each separate company is a subsidiary. From what I understand that's easier for tax purposes and legal purposes, but I don't know all the ins and outs of how that's so.

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    Post Impressionist Array vangogh's Avatar
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    Thanks. That makes sense. I hadn't really considered the idea of dissolving one of the businesses so that's good to think about. The umbrella/subsidiary set up is the one I think is probably best, but my knowledge on this is somewhat limited so I thought I'd ask for opinions.
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    It depends on the risk you expect each business to have. For simplicity, it's probably best to just keep one company with fictitious business names attached to it.

    So ABC Corporation is doing business as "StevesList" and "Ice Cream Enthusiasts" or whatever business you create.

    This would be much better than setting up ABC Corporation, being a parent company of StevesList, LLC and Ice Cream Enthusiasts, Inc.
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    Post Impressionist Array vangogh's Avatar
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    So in the end there really wouldn't need to be a lot of paperwork in this scenario and the organization exists mostly internally on my end? Or would I need to fill out paperwork to the effect of "doing business as...?"
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    Queen of the Forum Array KristineS's Avatar
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    I think there is some sort of paperwork for a DBA, but I'm not entirely sure.

    Here's some info on DBAs: Doing Business As Info

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    Mr. Tax Man Array
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    Quote Originally Posted by vangogh View Post
    So in the end there really wouldn't need to be a lot of paperwork in this scenario and the organization exists mostly internally on my end? Or would I need to fill out paperwork to the effect of "doing business as...?"
    The state would have the paperwork. It's similar to a DBA, but is often called a "ficticious business name". But in essence you'd be writing ABC Corporation dba Other Business.
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    Post Impressionist Array vangogh's Avatar
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    Good to know. Thanks. I'll have to look into it, but I assume it's all done through the same place where I registered my trade name. I found everything previously on the department of state site for Colorado and imagine I'll find this there as well.
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    Steve, I think the answer to your question really depends on what you are trying to do with the separation of the lines of business. If it is purely for marketing purposes, and perhaps some internal accounting to keep track of profitability by line of business, then using one entity with separate business names should be fine.

    If there is any concern for limiting liability (which is often difficult to do from a practical standpoint in a one-person business, no matter what form it takes), then you may want to consider multiple entities. If they are all single member LLCs (or a single member Series LLC if that is allowed in your state), then the "paperwork" is pretty minimal. You'll need to form each entity and then once each year file an annual report which in most states is little more that signing a single sheet of paper. There is an annual fee, which in most states is less than $100. A few states like California and my state of Illinois make it more expensive and therefore less attractive, but no more complicated.

    In most states, even the fictitious name filing requires some fee (usually less than forming an LLC) and requires that the filing be periodically renewed, so there is still some cost and some paperwork either way.

    For our real estate clients, we almost always recommend putting each property in a separate LLC (or separate cell in a Series LLC) because even with insurance there is a risk of a catastrophic claim against the owner. Ditto if the business consists of three or four restaurants. But if your business consists of, say, a web design business, a marketing consulting business and an online affiliate marketing business, I see less of a reason to use separate entities.

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    Post Impressionist Array vangogh's Avatar
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    I guess my situation is that I have a trade name registered with the state and beyond that I file as a sole proprietor. What I'm planning is to develop more sites beyond my main one. So I'll have say a half dozen sites that aren't really related to each other outside of me running them and ultimately the revenue from each coming to me.

    Do all those other sites need to be considered a business entity? Do I just run everything under my trade name? Do I list my main business as the registrant for each domain? Can I register all the domains under my name as an individual?

    All the businesses (if they really are separate businesses) are online sites. My main site sells services and hopefully soon one or more digital products. Other sites might have affiliate marketing as a business model. Sites might also sell informational content through a subscription based membership. At some point I'm thinking I may buy and sell websites, so for a time each website I buy will be part of my business until I sell them.

    I think those would be all the basic business models. None should have physical products or locations.

    What I'm really wondering is how do I deal with all those websites for accounting and tax purposes (or anything else I may not have considered). I'm not sure liability is going to be a main consideration, though I suppose if I start making enough money with some or all I'd lean toward forming some kind of corporation. Am I fine still being a sole proprietor of the business for my trade name? Or do I need to different set up?
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