Do I need to own a second business?

February 19, 2023 11:04 AM

Right now I'm a self employed software contractor, and I'm looking into starting a website about a mostly unrelated topic. I already have an LLC for my contracting, but do I need some sort of second business entity for my theoretical website now, or can I wait until I know what I actually want it to be? What do other small business owners do when they want to try something brand new that may not make a profit?

I'm finishing up a Master's degree in Psychology and I have some ideas for a website related to mental health that I want to try developing over the next year or so. During that time (and for possibly many years) I will be supporting myself as a software consultant in the video games industry through my solo LLC. So I already own a business, but it doesn't really have anything to do with my new venture. If my plans work out, I would probably want to structure my new website as a nonprofit, but that will be more than a year away as I need to develop software, infrastructure, and find partners before I know if it's even viable. I plan to hire some contractors for design work, but I definitely wouldn't take on employees until I know the website plan is solid. From my research I think there are roughly 4 options:

1. Keep my LLC strictly for game dev contracting, and do my new website work separately as an individual person until I'm ready to make a proper business or nonprofit for it. I don't love this option because I would need to pay contractors and buy domains with my personal bank account and I have no LLC liability protection if things go wrong.
2. Keep my existing LLC for game dev, and make a brand new LLC for the website with it's own bank accounts. Eventually I might transfer those assets to a nonprofit. This route makes my taxes/finances way more complicated and I'm not sure that an LLC that plans to become a nonprofit counts as a true "business" to the IRS as it will lose money for the first few years. It also costs me extra money if the website plan doesn't actually work.
3. Change my company description to be encompass both game dev and website creation and do all the website development work as my LLC. Then, sell/grant those assets to the nonprofit or business I make in a few years if the website plan works out. This plan is the most attractive to me because I could count website dev costs as business expenses, but I don't know if that raises red flags somehow.
4. Same as the last option, but file for a second "Doing business as" for my LLC. I'm not sure this gets me anything important but it seems to be the way that some people handle owning separate in-person small businesses.

I know I'll need to talk to a lawyer eventually (I live in North Carolina), but before that I would like to get a better idea of what my options are. I know there are people here who have started semi-commercial websites before, so I am happy for any advice related to the topic. Thanks in advance!

posted by JZig to Work & Money (3 answers total)

What are your goals for the new venture? Having a site like that (whether it's mostly a resource / information place or a place where there is some level of interaction between you and users, or among users) seems like it'd be a lot of work and energy to maintain in an ethical way. How will you ensure that no one gets hurt because of information they got from your site, or interactions they had? If someone's in a crisis and contacts you through the website, how will you handle that in a timely way?

Those ethical and legal questions should come first, before you decide on things like how to structure the corporation.
posted by tivalasvegas at 11:35 AM on February 19, 2023 [1 favorite]

Response by poster: Those are generally good questions about the website, and I plan to work through those before I get close to launching it publicly. If it I don't think it it can be done ethically or practically after prototyping it, I will just cancel the project. It's definitely not intended to make lots of money, but I need to do more research. I don't want to get into too much detail here though.

My question is about how to handle things for the next year+ where I do this research and start building the groundwork for it. I plan to spend around 20 hours a week on this (while supporting myself as a contractor the rest of the time), but I want to figure out how to properly structure things so I can pay other people for services and tech needed to get a prototype working. This question is about the temporary structure, not the permanent structure.
posted by JZig at 11:51 AM on February 19, 2023

This is definitely a question a lot of LLC owners face. I recommend reaching out to your closest chapter of SCORE for some no-cost advising. That group exists for exactly this reason - to support and inform small business owners on practical matters. I've found them incredibly helpful.

Your state attorney general's office should also be able to help you navigate this; NC has a Small Business page with info. I'm sure you navigated all this to get your license, so you might check back for FAQs, support lines and other resources. If unsure, give a call to someone in this office and/or a state librarian for help.

Finally, I can't give you legal or business advice, but I'm in a very similar situation and ended up opening a second "line of business" under my same LLC. My understanding is that this is fine, but the risk is that if you got sued for something that happened in Business A, that means the holdings of Business B are fair game to go after. A dba is just a more formalized/named version of the same. Separate LLCs would be a wall of separation between the two and protect the other business in case of lawsuit.

You could certainly get started setting up the infrastructure for this project under your current LLC. I'm not sure why you want the other line of business to be a nonprofit, but that would absolutely require a different incorporation anyhow. So if you're reluctant to mix these two things, you could just do the nonprofit filing now and set up all your reporting so you're ready for that. But as long as you're not earning any income, it shouldn't matter if you're working on it now. It would be shady, though, if you start incurring expenses and don't have offsetting income. This is where you really need an accountant's and probably lawyer's advice.
posted by Miko at 1:43 PM on February 19, 2023 [5 favorites]