Combining Multiple Lines of Business Under One LLC

If you're an entrepreneur, chances are you have more than one interest. But do you have to open up a new LLC for each new venture you start? Tune in to hear the pros and cons of using one LLC for multiple lines of business and how that relates to using DBAs.

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Episode Transcript

I've had quite a few people come to me with some confusion around DBA, trade name, and LLC and which one they need when and what the difference is. And you know, there are lots of multi-passionate entrepreneurs. We get into entrepreneurship because we have big ideas, and I know a lot of you guys have different lines of business, different ideas you're trying to put together, and want to know, you know, can that all be under one LLC? What do I need to do with that? So that's what we're gonna be talking about today.

Hey, I'm Amy Nesheim, licensed attorney for online business owners and founder of my own business, Artful Contracts. You're listening to Legal Made Easy, the show that makes the legal aspects of online business easy to understand and implement so you can grow your business with confidence knowing you've got it all covered. Let's dive in.

Alright, getting back to the basics a little bit. I need to make sure that we understand what a DBA is and the difference between that and an LLC before we get into the whole multiple lines of business thing. So, first, DBA stands for "doing business as," and that is one of the names for a trade name. It's also called a fictitious name or an assumed name. They all mean the same thing. And all of it is an official nickname for a business.

So when does this come up? This is important and required in most places. A DBA or a trade name is required when the legal name of the business is different from the name that is put out to customers that consumers see that is on your sales pages and your Instagram and all of that. So when might this come up? If you're a sole proprietor, if you don't have an LLC, but you do have a business name that's different from your personal legal name, the name on your birth certificate or social security card, then you need a DBA.

So if your legal name is Sarah Cook and you're a coach and you call yourself, call your business "Enlightened Coaching by Sarah," then Sarah would need a DBA. So her business name would be "Sarah Cook DBA Enlightened Coaching by Sarah." And what that does is creates an official legal link between the two names. And the reason for that is that we want consumers or like the government, people in charge of protecting consumers, want consumers to be able to find who is ultimately responsible for a product or service, who is the business, who is the business entity, who is the legal person behind a business.

And so if her customers only see "Enlightened Coaching" or "Enlightened Coaching by Sarah," but not her last name, it might be hard to find the legal person who's responsible for that company, which would be Sarah Cook. So the DBA registering it creates that link, creates that record that "Enlightened Coaching by Sarah" is actually Sarah Cook. So it's an official on-record nickname for the business.

Now, in that example, Sarah was a sole proprietor. So her official business, her legal business name is her personal name, Sarah Cook. But if she were an LLC, then the LLC name would be the official legal name of the business. Now, if you have an LLC and you go by the name of your LLC, you don't need a DBA. But if you have an LLC and you go by something else, then you do need a DBA.

So same situation, but this time Sarah has an LLC. Her LLC is "Sarah Cook LLC," but she still goes by "Enlightened Coaching by Sarah." She would still need a DBA that ties "Enlightened Coaching by Sarah" with "Sarah Cook LLC." So her business then officially would be "Sarah Cook LLC, DBA Enlightened Coaching by Sarah." Now to contrast that, if her LLC was called "Enlightened Coaching by Sarah LLC," she would not need a DBA because the name that everyone sees is the same as the LLC name. So there's no reason to have a legal link between the two names, even if she uses it with and without the LLC, the letters LLC attached to it.

And just to clarify, a DBA, or a trade name, all it is is that official nickname. It doesn't change your entity type, it doesn't change you to an LLC, it's not a type of business entity, it's just an official nickname.

Alright, so that brings me to the other piece of it. What if you have multiple lines of business with different names? Do you have to form different LLCs? Or can you have one LLC and multiple DBAs? So the answer is you can do it either way, but you should be informed about it. So here's what you need to know.

I think this is easiest to think about with some real context. So let's say you have one company that wants to sell a bunch of different things. So the example that comes to mind right now is "The Gap." So you have "The Gap," you have "Gap Body," you have "Gap Kids." It's all "The Gap," right? But they have kind of different brands and they sell different things. So the options are then you could have three different LLCs, one for "The Gap," one for "Gap Body," one for "Gap Kids," or you can have one LLC that's "The Gap LLC," and then you could have DBAs or trade names for each of the different lines of business. So you could have "The Gap DBA Gap Kids," and you could have "The Gap DBA Gap Body." I don't even know if "Gap Body" still exists. I don't know why this example popped into my head, but anyways, I think it brings the point home because you can have a brand name that is kind of then expanded on with different categories or lines of business, product lines that operate differently, operate separately, but they're all still related. They're all kind of still under the same umbrella.

So you can do it either way, but here is the thing you need to think about: if they are all under the same LLC and just different DBAs, that means that the liability and the risks and the money from all three lines of business are together. So if somebody walks into "Gap Baby," did I? I didn't even say "Gap Baby"? So okay, we have "Gap Baby" too. So if somebody walks into "Gap Baby" and trips and falls, they can sue "The Gap" and win money from "The Gap," and they can also win money that was earned in the "Gap Kids" store, and they can also take the money that was earned in the "Gap Body" store. The stores are separate, they have separate names, but because it's all in one LLC, the money is all together and the risk is all together. This is definitely not how the actual Gap is structured. It was just the clearest example that I could think of.

Now, in contrast to that, if "Gap Kids" is its own LLC and someone trips and falls in "Gap Kids," then the money from "Gap Body" is safe. Now, obviously, no one is gonna trip and fall on your website, but it makes a very clear example of what we're talking about. So if you have one business that you know has one service offering and a separate business that has a separate service offering and your branding is different, but you have one LLC, someone from one service can sue you and take money that you earned doing the other service if they're all under the umbrella of the same LLC. Even if you have two DBAs, different branding, all of that, because it's all in one LLC, the money is all together, the liability is all together, and it's all available for a lawsuit.

Now, on the other hand, if you have separate LLCs, that means you also have to maintain them all separately. So if it doesn't make sense to you to separate the money, if you have one line of business that is supporting another line of business economically, then it might not make sense for you to separate them out and have to, you know, have the maintenance requirements, the separate bank accounts of two different LLCs or three or however many. Because just like you have to keep yourself, your personal money separate from your LLC, if you have multiple LLCs, you have to keep each of them isolated and separate from each other.

Now, one more clarifying point when I'm talking about multiple lines of business and having DBAs for them, it's not just if you have different product names or product lines. I'm talking about you only need the DBA if a customer is gonna look at what you're selling or interact with your brand and think that it's a different company. So if they think that the name they're seeing is a brand name that represents a company and a business that stands on its own, then that's when you need a DBA. If it's clear that it's a product line or a specific product underneath the umbrella of a larger company, then you don't need a DBA for it. DBAs are just to make clear that a business, a company, is associated with which legal person. They're not for products, they're not for product lines. It's just if it's an entire brand or something that looks is perceived by the customer as its own company. So you have to look at what you're doing from your customer's perspective. What are they gonna think?

So all of that means that the things that you need to think about if you have multiple lines of business and are deciding, do I want a DBA, do I want multiple LLCs? So first, is it really different lines of business or is it different product lines or different products or services underneath the umbrella of one company? Do you co-mingle their revenue streams? Do you pay for the expenses of one out of the other? If that's the case, then you probably don't even need a DBA if it's product lines and not a whole brand. And if the money's all mingled together, anyways, then maybe one LLC makes sense. If the brands are really separate, if you have separate clients, if you keep the money separate or are willing to keep the money separate, and potentially if one line of business is risky and a different line of business is profitable, you want to keep that risk and that profit separate. And then so in that case, it might make sense to have multiple LLCs. Again, as long as you can commit to maintaining them and maintaining them separate.

If you're thinking about this, if this episode has been helpful or relevant to you, send me a DM over on Instagram. My handle is @artfulcontracts. I would love to hear what you've decided and what you're thinking about in terms of your DBAs and your LLCs. I would love to hear from you. Thanks so much for listening, and I will be back next week.