Small Business

Sole Proprietorship Guide: Multiple Businesses, Multiple DBAs & More

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By Next Insurance Staff
Jun 13, 2020 min read

When you open a business, there are a few different ways you can organize the company from a legal standpoint. 

Before selling goods or services, you’ll have to decide how to structure ownership and depending on who’s involved, you can choose to incorporate, form a partnership of limited liability company or set up a sole proprietorship. That last option is a simple business structure and it suggests that a single individual owns the company and is responsible for any corresponding liabilities.

A sole proprietorship is popular for one-person operations or freelancers who don’t really have complex operations and the reporting of income and expenses is usually fairly straightforward. Therein lies the value of the sole proprietorship, especially since you can also explore how to own multiple businesses. Business owners can simply file taxes as part of their personal return and not have to fuss with a separate report. Registering the entity with federal and state agencies is typically an easy process. You’ll need to establish an employer identification number and you’re off to the races.

A downside to a sole proprietorship is that you’re not creating separation between the personal you and the business entity. For instance, if you were to incur debt in the name of the business and couldn’t pay it back, you’d be personally responsible for loans or credit cards, for instance. Lending institutions could, therefore, target personal assets to resolve the business obligation.

Among many different forms of small business ownership, there is some flexibility with sole proprietorship arrangements and in what follows we answer some questions you might have.

Can a Sole Proprietorship Have Multiple DBAs?

If you establish a sole proprietorship, you have a couple of choices when it comes to naming the business entity. 

You don’t necessarily need to select a name for your business as you could simply use your given name and report taxes under that moniker. Some folks would rather choose a catchier name that might reflect the nature of their business. Either option passes muster with taxing bureaus and if you select a name other than the one you were given, that is known as a “doing business as” option or DBA. So, Francine Smith, for example, could operate under Fran’s Fabulous Footwear and that works from a legal angle.

To answer the question regarding multiple DBAs under one sole proprietorship, geographic location is key. 

Depending on the state in which you live, you might ask how many DBAs can a sole proprietor haveA sole proprietor can have multiple DBAs for unrelated businesses under the umbrella of a single taxpayer identification number (TIN) or employer identification number (EIN). It’s important to note that some states don’t allow multiple DBAs so if that’s your intent, you may want to explore setting up a limited liability company (LLC) under which you can house many different businesses with unique names.

Can You Have Multiple Businesses Under One Sole Proprietorship?

If you’re wondering how to own multiple businesses under a single sole proprietorship or tax ID and perhaps the easiest way to illustrate how it all works is from the perspective of a tax return. 

If you’re a business owner who opts to show business income on a federal 1040 form, that revenue will end up being reported on Schedule C. The top half of that document displays income from business pursuits less applicable cost of goods and returns and allowances.

Below that section, you’ll find a spot to list business-related expenses such as advertising, vehicle expenses, business insurance, etc. If you own a marketing consulting business, you’ll enter amounts per line-item on each dollar spent solely on that business. Let’s imagine you owning multiple small businesses in addition to the consulting business. One might be a gym and one might be a salon (you’re ambitious!). In this circumstance, you’ll need to file multiple Schedule Cs, but all can be included with your personal tax return, under your TIN, which distinguishes your sole proprietorship. 

So, the answer to the question “can a sole trader have more than one business,” is a resounding “yes.”

Sole Proprietorship

Is There a Limit on How Many Sole Proprietorships One Business Owner Can Have?

As an individual taxpayer, you might ask yourself how many sole proprietorships can I have?  

You can have multiple businesses under one sole proprietorship, each reflected on separate Schedule Cs on a personal income tax return, but the business entities must have activities that are very different from each other— perhaps a barbershop and a construction company.

You’ll need to acquire individual EINs to register multiple sole proprietorships and there’s one potential stumbling block to be aware of. The Internal Revenue Service (IRS) would be hesitant to issue several EINs for an individual that operates similar businesses. Consider the scenario if you are a contractor who has plumbing, heating and electrical backgrounds. The businesses will have some overlap with regard to materials, supplies, and activity. 

You could wire and plumb a furnace that supplies heat to a home and it would be difficult to parse those functions unless three separate contractors performed each task.

Can a Sole Proprietorship Have More Than One Owner?

If you’re asking can a sole proprietorship have more than one owner, this one’s cut and dried. 

A sole proprietorship cannot have more than one owner. If you view it from this angle, income and expenses from this one-owner business entity are reported on a personal tax form and thereby blend with salary, personal exemptions, applicable child tax credits, etc.

Since there’s not a lot of conjecture here, if you’re considering taking on a partner or two, you’ll need to explore a business structure other than a sole prop. You can form a partnership that likewise doesn’t require any official registration with the state but you will have to determine how income and expenses will be divided between two or more partners. This agreement will also apply to the responsibility for debt incurred by the partnership. 

So, a formal written agreement drafted by an attorney is a prudent move to avoid any conflict should the business experience financial difficulties. 

Moving on to the Next Step

You’ll want to have your formal business structure decided before conducting any sales through DBAs, single or multiple sole proprietorships, and there are also other requirements to lock down. 

From the administrative side, check with all local and state authorities to be sure you have the applicable permits and licenses needed to conduct business. To protect the assets of your company and avert a potential financial disaster, a comprehensive business insurance plan is a must-have. 

At Next Insurance, we provide expert advice and solutions that include general liability, commercial auto insurance and workers’ compensation policies

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By Next Insurance Staff
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