Strategic Business Structuring: Navigating Multiple Ventures and Partnership Success

Posted on April 10, 2024

Lets be honest, entrepreneurs are always thinking about new ideas. This is why you often see successful business owners have many different businesses often times even in completely different industries.

A question that comes up often in our Free Facebook Group stems around this idea of how to structure your business when you have multiple businesses or entities. That is exactly what we want to talk about today.

For our discussion here we are strictly talking about operating businesses aka businesses that you are active in. If you have rental businesses or passive activities that would be a separate conversation.

I also want to stress that we are looking at this from a tax perspective and we also recommend talking to an attorney to ensure this fits well from a legal perspective.

What Options Are Available To Structure Multiple Businesses?

Before we dig too deep lets talk about the possible options and then we can drill into them specifically.

  1. Main/Parent Management Company With DBAs for Separate Businesses
  2. Main/Parent Management Company That Owns Separate LLCs
  3. Separate LLCs Owned By You Individually

Lets also remember this idea of an S Corp when we are thinking about the setup. We have a full series discussing S Corporations that you can find here.

The setups that we talk about here will typically assume that you would qualify and want to implement the S Corp setup.

Ultimately if it is decided that an S Corp would make sense for you (to help minimize self employment taxes) we want to ensure that any active business profits are flowing through an S Corp prior to hitting your personal return.

Lets dig into these specific scenarios.

How Does a Parent/Management Company With DBAs Work?

In this setup basically you would have one main/parent company that then has subsidiary companies underneath it that are simply DBAs or doing business as names. If you went with an S Corp, that S Corp would own those DBAs and everything would be filed under one tax return and then the activity from that would flow through to you personally.

Here is an image:

You can either have one of your main entities act as the parent/management company or create a brand new parent/management company and have the various businesses be DBAs. Ultimately it would result in the same from a tax standpoint, you would just need at least one Corp or LLC that is taxed as an S Corp and that would be your parent/management company.

When talking with an attorney they might advise against DBAs depending on liability as there would be no protection in this type of setup because the DBAs are not separate legal entities.

How Does a Parent/Management Company With Subsidiary LLCs Work?

This works very similar to the one discussed above except now instead of having a simple DBA for the other businesses, you now are organizing them as an LLC and that LLC would be 100% owned by the S Corp.

Since the LLCs are 100% owned by the S Corp the activity from all of the LLCs would flow up to the S Corp tax return and then all entities combined would flow through to you personally via the S Corp.

Here is the breakdown of that:

Again, you would want to consult an attorney but typically the nice thing about this setup is that you are creating protection between the businesses through the separate legal structures.

How Does Multiple Business in Separate Entities Owned Individually Work?

In this scenario you would simply have each entity owned by you individually, no use of a management/main/parent company. The biggest downside to this setup is if you are utilizing an S Corporation. 

In this setup if you want to utilize an S Corp, you would need to have a separate S Corp election for each entity. That also means that you have to run payroll for each entity and you would need to file a separate business tax return for each entity. This creates added costs and complexities which is why we typically steer folks into one of the previously mentioned options.

Here is what that would look like:

How Should I Structure Multiple Businesses?

Lets go back to the main question, how should you structure multiple businesses?

  • Our recommendation generally is to have one main/parent company that is your S Corp and that main/parent company would then own your other entities (whether DBAs or LLCs) so that all activity would eventually flow to your S Corp which would then flow to you.
    • This allows for only needing to file one S Corp tax return.
    • You would only need to run payroll to yourself under one entity (the S Corp).
    • When you take owner draws or distributions from the subsidiaries you would send them to the S Corp which is where you would then from there handle the payments to yourself as owner.
  • We recommend running separate bookkeeping files for each entity especially if they are in completely separate industries.
  • You can also run them under one bookkeeping file and then have separate classes (Quckbooks Online) or Tracking Categories (Xero) for each entity. This works well but often times can create more mistakes if you are unfamiliar with the software.
  • You should always consider not only the tax considerations but also consult with an attorney to ensure the setup makes sense from a legal stand point.
  • If your business is still small or not making a profit you could do the same setup and just hold off on the S Corp election until it makes sense.

How Should I Structure My Business With Multiple Owners?

We often times get business owners that reach out to us that have multiple owners in their company, wondering what the best way is to structure their business.

In this specific article we are assuming an S Corp structure is desired prior to it reaching the owners personal tax return. If you don’t know what an S Corp is, we will dig into that in future post but in a nut shell it is a tax strategy to help limit the amount paid in self employment taxes.

With that assumption there are two main options we typically suggest. Note that this also assumes that all owners are going to be active within the business (not just silent investors).

Option 1: Setup company as an S Corporation with each owner as a shareholder in the business personally.

  • Advantages
    • One company, one tax return, one payroll account
    • Easier to setup and less maintenance
    • Cheaper
  • Disadvantages
    • Various owners cannot take advantage of tax strategies that help them but not other owners.
    • If you have multiple businesses you may need multiple S Corps.
    • Less Flexibility

Option 2: Parent company is a partnership with each owner having their own S Corp that owns their percentage in the partnership.

  • Advantages
    • Each partner can utilize tax strategies as they see fit (hire kids, business automobile, etc).
    • If they own multiple businesses their personal S Corp can hold the ownership in those and all business income will flow through their S Corp prior to reaching them.
  • Disadvantages
    • Multiple companies, multiple tax returns, multiple payroll accounts
    • More to setup and maintain
    • More expensive 

With that being said, lets run through some scenarios.

Scenario 1: Two owners and one wants a Mercedes for his business vehicle and the other wants a Prius. In option 1, there could be some conflict because the price for these are vastly different and the person with a Prius does not get as much out of the tax strategy. However in option 2, it doesn’t matter because they can hold the vehicle ownership in their personal S Corp and do whatever they want with affecting the other owner.

Scenario 2: Two owners in which they are 100% active in the business with no other ventures. In option 2 they would have to pay for a tax return for the partnership and then two S Corps. They would also have to run two separate payrolls for each S Corp. Rather if they chose option 1 it would be one business return and one payroll which means it is more cost effective.

Generally if the owners have multiple businesses they participate in, we will suggest option 2 since they will want all income to pass through an S Corp anyways so they can avoid a portion of self employment taxes.

If the owners are on the same page as far as spending and tax strategies, we typically say option 1 is fine for them to help minimize costs and maintenance.

Either way, there is no one size fits all for every situation so be sure to discuss with a tax professional to ensure you get things right from the beginning.

Here is an outline showing what is may look like from one partners prespective:

As a reminder, always be sure to run this past your attorney as well and if you have businesses that you are passive in, you would not use this advice for that.

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