Why it’s smart to SEPARATE your businesses into different entities.

In the world of entrepreneurship, many business owners often find themselves creating more than one business, entering into partnerships or collaborations with other business owners to create something together, or any similar situation where they find themselves with multiple business ventures operating at the same time.

If this sounds like you – stay with me. YES, You may be like “okay Christy, getting ONE business entity set up was challenging enough…now I’m supposed to do MORE than one??

Think about your current business operation – do you have more than one business going? Maybe you’re a licensed therapist who also started a coaching business this year. Maybe you’re an experienced online coach who launched a course with another entrepreneur this year, and plan to split profits. Maybe the pandemic has caused you to shift gears a little bit, and now you have multiple side hustles going with money coming in from each angle. If you have more than one business operating – I HIGHLY recommend you consider separating each one into its own business entity.

Add this on to your list of 2021 action items!

WHY THIS MATTERS:

*Legal HOT TIP* coming at you: if you are sued by someone, fined a hefty amount, or otherwise find yourself in any kind of hot water or potential legal battle, you want each business to legally be operating separately. (This means separate LLCs or Corporations – NOT DBAs or one big Sole Proprietorship)

Why? Let’s break this down a little bit into a few key points: 

1.       If one of your businesses is sued or otherwise comes under fire, you want that to JUST impact the business in trouble, not everything you have.

If you are sued, targeted by the FTC (or another regulating body for failing to comply with things like privacy policies or truth in advertising), or otherwise find yourself in a legal battle, you don’t want that to impact ALL of your businesses, and ALL of your assets. A lawsuit, claim, or other issue will likely specifically address one of your businesses only, and you want to make sure it’s clearly separated from any other business you operate. This will likely be impossible to do if they are all part of one LLC or Corporation: a court will see they are all intermingled, and lump them together as one business.

Picture a few boats in the ocean – if ALL your belongings are on one boat and it sinks…you’ve just lost all your stuff. However, if you spread out your items and put a few on each ship, you aren’t ruined if one ship sinks…plus, that one ship sinking does not impact any of the other ships

BUT… if you are operating ALL of your businesses as separate entities, this legal trouble will likely only impact the business named – all other businesses should continue operating without issue while the legal trouble is sorted out with the other business.

This is what you want to create with your businesses. If a business is truly separate from another (e.g. a therapy private practice and a coaching business)

2.       You don’t want ALL of your assets reachable by a judgment

Similarly, if you do end up in a legal battle and find yourself needing to settle or are on the wrong end of a large judgment, you want the assets to ONLY include those from the business at issue. A judge (or mediator) in this scenario will likely have access to the books of your company, and will be able to clearly see assets, profit, revenue, and other dollar amounts. If you end up on the losing end of the legal issue, you will want to have any judgment or fine / penalty limited to the amount of money you have in the name of the specific business at issue – NOT ALL of your assets across all businesses and personal.

The only way to do this is to ensure all businesses are separated out into their own LLC or Corporation, and ensure your revenue and expenses are all operating separately. But HOW do you do this?? 

3.       You’ll want to keep separate revenue, expenses, regulations / rules, etc.

Enlist the assistance of a business attorney in your state to file the corporate or LLC documents, plus all docs that go with it (operating agreements, bylaws, stock certificates, etc.)

Open business bank accounts for each company, under their respective business name

Make sure you separate ALL revenue streams to ensure each one goes into the correct (separate) bank account.

Separate all expenses – use a debit card for each businesses or keep separate credit cards so you can be sure all expenses are separated and can be calculated toward that business’s annual expenses when it comes time to do taxes.

Want more HOT LEGAL TIPS?? Join my FREE Facebook group HERE!

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