Can a Limited Liability Company (LLC) registered in the United States engage in two, three, or more types of business activities? Let us find it out.
NAICS in the USA
The NAICS (North American Industry Classification System) is used to classify the business activities that American companies are engaged in. This is done for statistical purposes in the first place.
Some American states such as Alaska, Georgia, and Louisiana, for example, make it obligatory to specify the NAICS number(s) in the application for company registration. Other states do not require that it should necessarily be specified: writing a general phrase such as “The company is going to engage in legal business activities in accordance with the state legislation…” would be enough. Sometimes you have to indicate the specific business spheres where your company is going to work: trade in real estate, restaurant business, landscape design, and so on.
If the laws of the state where you would like to set up a company require that you specify the NAICS number, you can easily find it here: https://www.naics.com/search/. Enter the keywords in the search box and you will find the classification number for your prospective business.
Please note that changing the NAICS number is very easy: all you have to do is notify the state authorities of this.
LLC in the USA and types of business activities
The US legislation allows companies to pursue various business goals at a time. You can have only one company while engaging in different business spheres. There are three ways of doing that:
- Use one company to do several businesses;
- Use a holding company;
- Register DBAs (doing business as); these are often called ‘fictitious names’ in America.
Advantages and disadvantages of engaging in several business spheres with one LLC in the USA
Some advantages of this form of business operations:
- It is easy to engage into a new type of business activities when you have a company dealing in a different sphere, as no bureaucratic procedures are involved.
- It is less costly to engage into a new business with an old company as you do not have to pay registration fees or a new franchise.
However, there are some downsides to this form of business operations that can make them unreasonable:
- Increased risks as one company is going to have liabilities in different spheres.
- Common accounting hardens giving adequate assessment of each business sphere.
Most often, startup businesses in the USA declare the intention to engage in many spheres of business activities at a time. Later on, when the company begins to receive a stable profit, it gets divided into several LLCs each one specializing in a certain type of business activities.
One LLC in the USA vs. several LLCs
Taxes and reporting requirements
In most cases, the taxes payable by one LLC doing several types of business equal the taxes payable by several LLCs each engaged in a particular type of business. However, if you have a franchise, every company will have to pay the franchise fee. The same goes for acquiring licenses and permits: if you need to obtain more than one, you have to pay more than once.
As far as the reporting is concerned, it is obvious that the more companies you have under your management the more reports you have to submit.
Bank accounts
If you have one LLC in the USA, you will have to have one bank account. If several, several accounts. The same goes for accounting routine.
Liabilities
A company engaged in several business spheres runs larger risks. If a counteragent in one sphere of business files suit, the whole company goes to court. At the same time, if a lawsuit is filed against one of your companies, all the others remain intact.
What are DBAs?
A DBA is a sort of a nickname that the business owner gives to one of the business spheres that he/ she is engaged in. ‘Company X doing business under the brand name YY; Company X doing business under the brand name ZZ; and so on’. DBAs are used for two main purposes:
- One LLC + many DBAs – separate for each type of business activities;
- One LLC + one DBA – to do business without using the registered name of the company.
A DBA does not have to be registered as a separate LLC in the USA. Some procedures are involved in acquiring permission to use DBAs anyway and these procedures are different in different states. You will have to submit a request and then follow the registration authorities’ instructions.
Please note that a DBA is not a separate legal entity and all its liabilities lie with the LLC on whose behalf the business operations are performed.
Use of a holding company as one more option
The US legislation allows creating an LLC for a specific purpose that will be controlled by a holding company. The opportunity is normally used when the company founders want to sell part of the business or, on the contrary, they want to get involved with a new business sphere.
A separate corporate entity has to act as the holding company, that is, it has to be registered with the authorities as an LLC or as a corporation. We must note that this option is interesting only for large businesses as it entails considerable legal and accounting expenses.
The role of the holding company is to own tangibles and intangibles of other companies and it is not to be actively engaged in business operations. For this reason, a holding company will be justified as an asset protection instrument.
If you have questions about establishing a company in the USA or about the best ways to structure your business in America, please contact us without any hesitation. Write to our email address or use the live chat and we will reply promptly.
