Corporate Law Multi-Business Structure

[reazon19]

I'm looking to start a couple of LLCs and I have a couple if quick questions about structuring them together that I would like to try and get answers for so as to have a better understanding of possible legal issues.

if I start a parent company and split the ownership interest with a business partner, would I be able to then start another company with myself as majority owner, and the parent company as the minority owner, even though I also have ownership in the parent company?

it seems like an obvious conflict of interest, and I know there will be plenty of accounting and tax issues to deal with, but legally speaking is there anything that would not allow me to do this?

my thinking behind this is to "AFFILIATE" with the parent company for brand purposes but still keep majority interest rather than the 50/50 split of the parent company...for the sake of possibly breaking away from the parent company in the distant future.

 

[Michael Wechsler]

I am unaware of a problem with incorporating two separate corporations as you propose, where one you own the shares of stock equally with a second person or party (parent) and where the parent also owns a minority interest in a corporation whose shares of stock you own in as a majority interest. In fact, this type of structure occurs all the time. I'm not going to say that there is absolutely nothing preventing you from incorporating in this manner as it's possible that there are state laws that might prevent you from doing so in certain circumstances but I don't believe that it should present a problem.

I have a client where the parent company owns shares of a several subsidiaries, each which performs a certain type of work. It is created in this structure for both accounting and legal purposes. Each subsidiary contracts directly with clients, e.g. a hosting corporation provides hosting services, a development company provides website development services, etc.

While I don't think there is a problem, you will certainly want to speak to an accountant or an attorney specializing in tax law or incorporation so that you're aware of two important issues: (1) legal procedures required for each type of corporate form, e.g. C corp, S corp., LLC, etc. and (2) accounting and tax issues. What would seem straightforward unfortunately is not. Many times someone will find out that there are formalities involved in certain types of corporations that are not preferable. This also may including banking issues involved with a corporate type (specifically LLCs where you have more than one person.) Good luck.