Legal Question in Business Law in Texas

Re: Can a sole propriertoship own a subsidiary?

The answer to your question has several parts:

1. DBAs: You can file another DBA, and then divide your business between them as you like. By doing so, however, you would still actually be doing business as a single sole proprietorship - generally not the best approach. Better to incorporate or set up a limited liability company (see below).

2. SUBSIDIARIES: The parent-subsidiary relationship arises only in connection with business entities like corporations. One corporation (a "parent") owns all or a substantial portion of the stock of another corporation (the "subsidiary"). This usually happens because the parent wants to buy or set up a separate business but doesn't want the liabilities of that separate business to "flow-through" to the parent (i.e., the subsidiary's assets would be the only assets exposed to its liabilities - the parent's would not in most cases).

3. YOUR SITUATION: In your case, the liabilities of both of your businesses will flow through to you and your personal assets.

Most people don't like this because there is no limit to your liability.

If you incorporate (or set up a limited liability company), the "corporate liability shield" will protect your personal assets, meaning that you can place an absolute limit on your downside exposure (the amount of assets you leave in your corporation) in most instances (fraud excepted).

Your corporation or LLC can then file the DBAs you want to use (or you can use multiple corporations with different names - which further limits exposure by dividing the assets between the entities).

Note: Many people prefer LLCs because they simplify the accounting involved (usually, just a Schedule C addition on your personal tax return, rather than filing a separate Form 1120 or 1120S).

So you have some flexibility, and it's relatively inexpensive to set them up. It's also much safer to do business this way, as sole proprietorships create unlimited downside exposure.

James Waite