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I just incorporated one of my businesses and want to form a subsidiary of that corporation with another business I own. What

Los Angeles, CA |

are the benefits of forming a subsidiary as opposed to just incorporating the second business?

Attorney Answers 4

  1. There are no inherent benefits. Some might argue it aids in asset protection, but whatever benefits it confers are cancelled by the double documentation and administration.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here.

  2. I agree, Michael Doland is right. I would add another factor, that a subsidiary has the advantage that if the two companies are in the same general field, a feeling of a bigger enterprise can be conveyed by “subsidiaries”. But if the two companies are in different fields, the legal benefits are as Michael Doland writes. Check though with your accountant if there is a tax advantage to one or the other.

  3. I generally agree with my colleagues .but as a lawyer that also an economist I will advice prior of asking the question of formulating any subsidiary, you need to discuss and review the reasoning behind that decision. For u to ask u have something specific in your mind. To play the "devil's" advocate, you need to know there are many issues to be explored. Case law teach us as lawyer that sometimes subsidiaries,if not formulated in a serious legal reasoning can be construed as basis of tax evasion, fraud,effort to hide assets, profits etc.
    You need to be advised by lawyers that are economists and fraud examiners and can guide you appropriately. Some of us in avvo have those credential.

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  4. Corporations are often used for liability protection. If you own two separate corporations, each has a separate liability protection. If Corporation A owns all the stock of Corporation S (the subsidiary) , and a law suit is successful against A, since all the stock of S is owned by A, it will be subject to the claims of the judgment creditor. Better liability protection is afforded by two brother sister corporations.

    The response to this question does NOT create an attorney client relationship and is an effort to provide a gratuitous general response without ability to determine accurate facts. An attorney client relationship can be implemented only be a formal engagement letter accepting representation. Do not rely on the response provided herein as advice to you.

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