Starting a New Sole Proprietorship Topic- EINs and DBAs

[Ebird]

Hi Mustachians,

You've been awesome in the past answering my questions.  I hope there might be a former business lawyer in the crowd today.  So my dilemma is:

Currently I only have plans on working on one business full time at the start as a sole proprietor, which I'll refer to as CA for simplicity and privacy.  I've already set up my EIN stating the name CA on it.

6 months- 1 year later:
I would like to open 2 other business lines with unrelated products called CB and CC.  However my EIN still lists CA on the form.

 So I thought as a possibility I could create an umbrella company name called GroupEX (just an example) for the 3 businesses?  Then I'll use this as my new EIN name and contact the local municipality.  But this negates the legal protection of having separate business entities doesn't it?

 
So that's the background.  Does it really matter if I use the EIN registered under name "CA" for businesses "CB" and "CC"?

**All of this relates to what I'll be registering my business as in my state's DBA or Fictitious Names database.

[lexde]

Not sure how CA is, but generally, if you want the benefit of separate entities for liability purposes, they need to actually be separate entities. You can have a holding company that owns each of the three businesses, but one EIN per entity and one DBA per entity. So you’d be looking at four companies. Typically you wouldn’t go by two names either, such as CompanyA LLC d/b/a CompanyB because legally, if DBA, then the DBA name should be used.

Also consider that a sole proprietorship does not limit your liability in the way a corporation would, anyway.

Grain of salt, and all that.

[Michael in ABQ]

You're describing a holding company and that is probably way too complex for the size and scale you're at.

Go create two more LLCs, get two more EINs, two more DBAs and be done with it.

Unless you intend to have some sort of shared back-office services or cross-selling to the same customers dealing with a holding company is going to be far more trouble than it's worth. How are you going to allocate the cost of your time across the three businesses? If they share the same physical space what's the breakdown on rent? Does it go 1/3 each or by percentage of revenue, or how much resources they're using?

[SeattleCPA]

The juice probably isn't worth the squeeze, in terms of setting up a bunch of entities, accounting systems, business licenses, etc.

Another more subtle thing is, you would often want to group your activities to get material participation (at least in US) and to avoid having some new product or service treated as a startup (which delays when you can deduct expenses).

A bit more info here: https://evergreensmallbusiness.com/grouping-activities-to-achieve-material-participation/

P.S. "Keep it simple" is a good approach in general.

[Ebird]

You're describing a holding company and that is probably way too complex for the size and scale you're at.

Go create two more LLCs, get two more EINs, two more DBAs and be done with it.

Unless you intend to have some sort of shared back-office services or cross-selling to the same customers dealing with a holding company is going to be far more trouble than it's worth. How are you going to allocate the cost of your time across the three businesses? If they share the same physical space what's the breakdown on rent? Does it go 1/3 each or by percentage of revenue, or how much resources they're using?

Thank you Michael This was very helpful.  I'll pay attention to the back-office services and customers we are dealing with. 

[Ebird]

The juice probably isn't worth the squeeze, in terms of setting up a bunch of entities, accounting systems, business licenses, etc.

Another more subtle thing is, you would often want to group your activities to get material participation (at least in US) and to avoid having some new product or service treated as a startup (which delays when you can deduct expenses).

A bit more info here: https://evergreensmallbusiness.com/grouping-activities-to-achieve-material-participation/

P.S. "Keep it simple" is a good approach in general.

You're probably right, keep it simple stupid.... lol

Anyways you've given me more creative ideas for the future.  Thanks!

[SeattleCPA]

Anyways you've given me more creative ideas for the future.  Thanks!

I don't think we broached this subject above, but you want to think at some point about operating as an S corporation.

You can roughly estimate the payroll tax savings using this calculator (which is just a simple JavaScript program...nothing fancy):

https://evergreensmallbusiness.com/s-corporation-tax-savings-calculator/