Business structure question
February 13, 2017 7:36 AM   Subscribe

I have a question about how to structure a few businesses that I'm running. I have three business that each perform different tasks.


John Smith Services - John Smith Services would be my main company name (I think.) John Smith Services provides all kinds of services from IT and computer support to just general labor services. I do not yet have any formal business setup with this name.

Under the umbrella of John Smith Services, I have two more businesses.

1) Example Company A - Example Company A sells items online. Example Company A already has been registered as a Sole Proprietorship business in my state and the IRS. I'm thinking now I need to setup Example Company A as an LLC to protect my personal assests. But perhaps this isn't the way to go if the proper way to go is to setup the umbrella company, John Smith Services as an LLC.

2) Example Company B - Example Company B provides aerial photography services. I do not yet have any formal business setup with this name.

That's it. I really don't know the proper way to structure these businesses. Thank you for your suggestions.
posted by Jackie_Treehorn to Work & Money (5 answers total) 3 users marked this as a favorite
I am not a lawyer, this is not legal advice, but I've been thinking about corporate structures a lot lately. Talk to a lawyer, obviously, but I would approach this one of two (or three) ways, based on the assumption that you want to do this to a)protect your personal assets in case one of these companies gets sued and b)protect each company's assets if the other one gets sued:

- Each company a its own LLC. You own both. As long as you keep them totally separate (no commingled assets, if someone works for both they get paychecks from both, etc) then they should keep everything ok.
- An LLC can own another LLC, so you could create an umbrella LLC to own these two LLCs. I'm not sure why you would do that, but you could do so in order to mimic that 'umbrella' structure you're talking about.
-You could have one Series LLC with two Series, one for each company. Same rules about firewalls between companies. This will require more lawyering to set up, but ongoing you will only have to pay one franchise fee etc. This option is basically the same as the first, with more expensive setup and cheaper maintenance.
posted by daniel striped tiger at 9:08 AM on February 13, 2017

I'm in this same boat. In my case, the equivalent of John Smith Services is a corporation, to insulate me from risk, and the online stuff and company B are DBAs, which is not the same as subsidiaries. This simplifies a ton of stuff. The corporation's insurance covers the activities of all three activities.
posted by carmicha at 9:26 AM on February 13, 2017

If you don't talk to a lawyer and an accountant before you decide, you are probably going to regret it. Any of these setups will have certain tax consequences, particularly the rules for pass-through entities, that may be right or wrong for how you do business.

And if you want to use the corporate form to protect your personal assets, which is generally a good idea, there are a lot of formalities you'll need to follow in order to maximize the chance that you'll preserve that protection in the face of litigation seeking to pierce the corporate veil and get at your personal assets. This gets even more complicated if you are the sole manager of 2-3 LLCs that own each other.

When I sue a business for something like unpaid wages and they turn out to have matryoshka-style corporate structures or something screwy with who owns what, I start to salivate.
posted by radicalawyer at 11:02 AM on February 13, 2017 [2 favorites]

Yes, if it was me, I'd set up JS Services as an LLC and just d/b/a for Services A and Services B (assuming you don't already have a lot of contracts it would be difficult to assign from Services A to JS Services). Then you wouldn't have to strictly segregate funds and assets, as you would if Services A and B were wholly-owned subsidiary LLCs of JS Services--but all corporate (not personal) funds and assets would be subject to a judgment obtained against any of the "entities" (technically, there'd only be one). Still, this is a situation in which you don't want to shoot yourself in the foot by being stingy about paying for legal advice.
posted by praemunire at 11:15 AM on February 13, 2017

I'm involved in the management of some companies that have evolved into a similar setup over time and I wouldn't dream of doing this without a lawyer who specializes in corporate law in your state/province/region. You need to be able to evaluate your risk under various arrangements with the aid of someone who understands the legal ramifications in your neck of the woods.
posted by Doleful Creature at 6:28 PM on February 13, 2017

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