Should You Create a Second LLC or Use a DBA?

should you create a second llc or use a dba that's the question i'm answering today one of our subscribers asked a question he said i'm looking at expanding into a new area it's an area unrelated to my first business should i create a second llc for that new business or use a dba well first off congratulations it's a great problem to have that the first business is going well you're a serial entrepreneur you're looking at launching a second business let's talk through some of the issues that arise when determining is it better to use a dba or create a whole new business entity now i'm going to use llc here for purposes of the conversation but this would equally apply to an s corporation or even a c corporation if that's what you had i'm aaron hall i'm a business attorney in minnesota i've answered a number of similar questions like should my spouse and i own llc together would a sports and fitness trainer benefit from an llc and what's the difference between an llc s corporation and sole proprietorship today we're talking about the specific scenario of you have a good business running and you're trying to decide do i now open a second business entity or use a dba dba stands for doing business as so you might for example have john smith electronics doing business as smitty electronics or doing business as smitty's pool service or doing business as smitty's camera shop as you can see a dba is just essentially an alias or a nickname for an existing business and every state has a process where you can set up a dba sometimes called an assumed name or an alias so that you can legally use a different name for the same business entity all right what are the benefits of setting up a second business entity or a second llc first you have separated the liability so if a problem happens in your first business the second business isn't liable or if a problem happens in your second business the first business isn't liable you've separated out that liability so now not only are you not personally liable as the owner for what happens in these companies they're not liable for each other i'll give you a common example many times people will set up a separate llc for each rental property because if something happens with one they don't want the other they don't want to risk losing both rental properties that's a simple example so that's the benefit of setting up a separate llc you isolate the liability to the entity where the problem happened and the other business isn't exposed to that liability what are the disadvantages of a second llc well first off you're gonna have separate accounting for both of those llc's you'll have separate payroll maybe a separate payroll company you'll have to do separate tax returns it's just kind of a pain to have to keep the formalities if you will of having a second llc so there are costs associated with that cpa costs probably attorneys costs so that's the big difference there it's just another llc or corporation to maintain what are the alternatives to a second llc well we talked about one in the beginning you could do a dba or an assumed name the problem with that again is that the liabilities are all in the same entity so if one business has a problem both businesses can go down because they're all in the same entity even though they have separate names or separate aliases separate dbas another option is to keep them all in the same entity use dbas but get insurance to limit your liability so for example you might get a million dollar insurance policy that covers a significant number of the lawsuits or risks that you might encounter so insurance is a way to minimize risk rather than setting up a separate llc another alternative to a second llc is available in some states it's called a serial llc a serial llc is a llc that is set up with uh under a specific state statute that allows you to have as many many llc's underneath it so you have one llc but then you essentially have to keep separate records for each llc within it technically they're not many llc's they're just a part of that serial llc so you kind of have a parent serial llc and then each division or each segment of that llc has um isolation from the liability of the others it's like having two or three or ten llcs but you're not having to pay the costs and have totally separate llcs let's talk about when can one llc be liable to another llc by the way this again applies to s corporations or c corporations the general rule is it's when they co-mingle assets that's the biggest issue that they basically you're having everything going to the same bank account you're keeping the books and records for both llc's and the same quickbooks file you're buying things and selling things you're treating it like one company even though they have two separate names often courts will say look one llc is the alter ego of another you're not distinguishing between the differences in the two llc's the court's not going to either and that means that if there is a lawsuit against one llc the plaintiff who initiated the lawsuit the party who sued your business may be able to pierce the veil and go after the second llc to learn more you can uh check out my video on piercing the corporate veil or piercing the llc veil it's an important legal doctrine that talks about when entities can be liable for each other can i use the same ein number for both llc's no so let's break that apart ein stands for employer identification number it is the tax id number that's given to a business you as an individual as a as a citizen of the united states you have a tax id number we call it social security number but businesses don't have social security numbers they have a different type of tax id and e i n employer identification number that is how the irs tracks all of your bank accounts your tax liability and all that you need to use a separate ein for each business that you have so if you have two llc's you get two eins they're free you set them up with the irs you want the irs to be distinguishing to between the two businesses all right so we talked about the benefits of a second llc isolating liability we talked about the disadvantages of a second llc you have to treat that as as a separate business separate payroll separate accounting we talked about the alternatives of a second llc and that would be an insurance policy a dba perhaps a serial llc if it's permitted in your state we talked about when can an llc be liable to another for another llc and that goes to the piercing the corporate veil doctrine it's basically when you co-mingle assets that's the big one and then can you use the same ein for an l for both llc's the answer is no so if you're a business owner you're successful uh you're you have one business doing well the next question to talk with your attorney about is will the new business have risks that i don't want to expose the old business to if the answer is yes set up a new llc or will the old business have risks that i don't want to set expose the new business to if the answer is yes set up a new llc you want to be able to isolate the risks by having two separate llcs so if i were facing this issue i would ask myself how big are these businesses do i re and do they have substantial risk of getting sued maybe can i get an inexpensive insurance policy often business owners will say you know what i'm going to run both businesses out of the same llc for a while until the second one is really profitable and then basically i'm going to close down that division of the of the old llc and launch a new llc that has to be done with care it's important that we avoid what's called successor liability that's where the new llc looks like just an alter ego or a successor of the old entity but you can do that with a with an attorney and a lot of times business owners will start both businesses in the same entity and then once both are really profitable they'll shoot it out into a new entity if you find this helpful feel free to subscribe and get other videos like this if you have questions you're welcome to ask them below this video today was in response to a question that was asked by a subscriber of this channel and so i'm happy to try to answer questions in more of a generic educational way and that's an important reminder of the disclaimer that's noted below this is general educational information i do this to help you spot issues to talk with your attorney about this is not a replacement for an attorney if you found this helpful i'd appreciate a thumbs up it's not helpful thumbs down and again feel free to continue the discussion below and there are more links below all right in my next video i'll be talking about how youtubers and influencers can avoid legal pitfalls youtubers and influencers have been contacting me over the past few years they have a unique set of challenges and we're gonna talk through some of those pitfalls and problems if you'd like to make sure you 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Channel: Aaron Hall for CEOs

Views: 84,128

Keywords: Attorney, Legal, Lawyer, HowTo, Tips, Education, LLC, DBA, second LLC, second, benefits, disadvantages, alternatives, liable, EIN, disadvantages of a second LLC, benefits of a second LLC, alternatives to second LLC, llc or dba, dba or llc, llc, dba, another llc, when to have a dba, dba vs llc, dba vs another llc, llc vs dba

Id: eTpB55Enk3I

Length: 12min 24sec (744 seconds)

Published: Tue Aug 18 2020