It takes a special kind of person to start a business: a rare combination of drive, ambition, creativity, tenacity and impatience for action. But even within the community of business experts and entrepreneurs, there is a special breed of person known as a “serial entrepreneur.”
I’m a serial entrepreneur myself, and I find that once you’ve experienced the excitement and fulfillment of figuring out how to start and grow a small business, you might find yourself wanting to do it again.
Whether you’re starting your second business, or expanding your business empire to include multiple brands or categories, you need to give some thought to how to legally structure multiple businesses.
There are various options with different levels of complexity. One of the simplest solutions might be to keep each business separate.
If you own multiple businesses, there are several reasons why you should incorporate your business with a legal entity. Choosing the right corporate structure can help you grow a business without exposing your personal assets to the liabilities and worst-case scenarios of business ownership.
Types of Legal Structures of a Business
Start a business the right way – by protecting your personal assets, limiting your risk and presenting a professional, credible image for every business you own. Choose the right corporate structure for you:
LLC: The Limited Liability Company (LLC) is often a simple and popular choice for entrepreneurs looking to incorporate a business because it involves less formality and regulatory reporting requirements. By incorporating each of your businesses as a separate LLC, you get the benefits of having a corporate shield over your business to protect your personal assets. In case any of your businesses gets sued, the judgment cannot go against your personal savings, retirement, home, or college fund for your kids. The LLC is considered a “disregarded entity” by the IRS, so the company does not pay taxes – instead, the company’s earnings “pass through” to the owners, who then pay taxes at their individual tax rates.
S-Corporation: The S-Corporation is another popular choice among small business owners, with over 3 million S-Corporations in existence in the U.S. One advantage of the S-Corporation is that it might help the owners reduce their self-employment tax liability. S-Corporations are ideal for small groups of partners (in fact, they are limited to only 100 partners), but they can only issue one class of stock, and cannot issue publicly traded stock. So if your goal is to grow a business to the point that you can make an IPO, or to raise venture capital, you’re better off choosing the next option for a corporate structure, a C-Corporation.
C-Corporation: The C-Corporation is the ideal choice if you want to grow a business to potentially attract venture capital, since the C-Corporation structure enables you to issue multiple classes of stock, and venture capital investors often want to receive preferred shares with special rights and benefits.
If you have different goals for your various businesses, you might choose different business structures for each. But whatever you decide as you start to grow a business, whether it’s your second business, third, fourth or fifth venture, make sure to incorporate each of your businesses with some sort of corporate entity.
That way you protect yourself and your family from the “worst case scenarios” of being an entrepreneur. Even the most committed serial entrepreneurs need to be mindful of the risks and downsides of entrepreneurship, and protect against them.
Editor’s Note: This was originally written by Nellie Akalp for Exit Promise.