What Type of Holding Company Should I Create?
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I would like to create a holding company that I can use to purchase existing small businesses. My plan is to purchase an existing "Beverage Drive-Thru" business that has been established for approximately 15 years and is currently making a profit. My ultimate goal will be to continue in purchasing small existing businesses under the holding company that I create. Which would be the best option to minimize my personal tax impact, as my wife and I will continue to work our day jobs? What other factors should we consider?
In creating any business for any purpose, you have both tax as well as legal factors. Deciding on the form of entity for your holding company depends on a number of issues.
For example, what's your personal tax situation? Do you envision bringing in other owners -- especially passive investors -- into the holding company? And once you buy these businesses, what plans do you have to continue to operate them, especially if you and your wife will continue in your day jobs?
Will you be hiring other managerial staff? Might they want stock options as part of their compensation? All of these factors, and more, go into weighing which form of entity will be right for your situation.
Another important factor to consider and you buy these businesses is your expertise in the industry. Have you had any experience in the beverage drive-through business? If not, how will you evaluate whether the current business is really on solid ground? It may be making a profit, but there could be large outstanding debts. Or erratic cash flow. Or major employee or business systems issues.
Make sure you team up with an advisor who can help you evaluate each of the business opportunities carefully so that you're not buying something without knowing what it's really worth.