My relative has three sole proprietorship companies A, B and C. Could he change C to a parent company of A and B?

Asked over 1 year ago - Melbourne, FL

He has a sole proprietorship restaurant A , a sole proprietorship traveling company B , and a sole proprietorship investment company C . He wants to change C to a parent company and change A and B to two subsidiaries of C . C will manage A and B and A and B have to give C management fees . And he also wants to create a headquarter . Is it possible ?

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  1. Marshall C Deason Jr.

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    Answered . Yes, this can be done. However, it is not a do-it-yourself project. Your relative should consult an experienced business lawyer in your area to help him with structuring his business.

    Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does... more
  2. Tracy Jong

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    Answered . Yes, this is possible. It is important to understand that there is no entity yet, just 3 businesses operating as sole proprietorships. These are sometimes called "dba's". Essentially, this is trade name under which he is doing business, but there is no business separate from him as an individual. In other words, his liability and risk extends to the full value of his personal assets.

    Creating an entity such as a corporation or a limited liability company will shield his personal assets from liabilities of the business. This is the greatest benefit of incorporating a business. In some situations, however, insurance can mitigate the risks involved, reducing the advantages of the entity for the business owner.

    It is probably a good idea to create at least one entity that owns all of the business assets. This first step will give the benefit of protecting his personal assets. As to whether he needs 2 more entities, that requires more analysis. It is possible for one corporation to have several distinct businesses and brand names. They can operate independently under the same umbrella. This can reduce costs for taxes, insurance, and other expenses that might be duplicated with several separate businesses. However, the liabilities of one business can affect the other businesses. Most attorneys would favor separate entities, even if one was a wholly owned subsidiary of the other. But a good business attorney will evaluate not only the legal issues, but also the practical business issues and tax implications.

    In some cases, it makes sense to have 3 separate entities - then each is insulated from the other and the owner is insulated from the debts and liabilities of all 3. This might be advantageous is one of the businesses is riskier than the others, or if there is a possibility of each being sold separately in the future.

    There are many considerations in this situation. An experienced attorney will be able to guide you. Advice from an accountant will also provide valuable information as to what structure might be best for your unique business situation.

  3. Alicia Simone James

    Contributor Level 10

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    Answered . Yes this is possible. This structure can also have tax advantages. But, please see a tax attorney to get this done right. You may inadvertently create more liability. Plus, you will want the protection of attorney client privileges for your communications.

    My comments are NOT LEGAL ADVICE. They are for informational purposes only. Actual legal advice can only be... more
  4. Douglass S Lodmell

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    Answered . What does you relative seek to achieve by putting the proprietorship of A and B in Company C? If the main purpose is avoiding or reducing liabilities, this is not a good idea. An LLC is an excellent legal tool for owning and managing a business and for insulating the risks it generates. However, it will not protect other assets (as other businesses or personal assets as bank and brokerage accounts or a primary residence) from lawsuits.

    Depending on the total value of the business venture, the revenue they generate and the personal net worth of your relative, he or she may want to consider combining the existing LLC’s with a legal tool that is specifically designed for asset protection purposes: a Family Limited Partnership filed in a state with strong charging order rules as AZ.

    It is a good idea for your relative to schedule an appointment with an attorney that has proven expertise in the area of asset protection planning.

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4... more
  5. Clayton Harold Walker Jr.

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    Answered . If he has three sole proprietorship he has three businesses; but, no companies. He form three companies with his three businesses. The creation could be done tax free. He could also form one company and transfer all three businesses into the first company and it could spin-off two subsidiaries. This could be done tax free. He could also use a host of other business entities to accomplish the task. The underlying reasons, such as, management, tax, potential for attracting outside investors likely should control what is done. He should clarify the reasons for the change and discuss the plan with counsel.

    If you find an answer helpful please mark it as such or as the Best Answer. You have asked us to state an opinion... more

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