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  1. #1

    Default Multi State Business, Holding, Operating Company, Invest Co and Subsidiary

    My questions involves business law in the state of: Colorado and Delaware.

    Hi Guys,

    I have been tasked with finding information about the best way to proceed for my family's new business venture and my head is spinning.


    Summary:

    I would like to know the best way to proceed and in which states to form parent/holding company (Colorado and Delaware) and if having a subsidiary will give the greatest benefit to the company in the form of decreased taxes.

    First, I have an LLC formed in Colorado currently as we are residents there and will do a good amount of business there. Brand new, no business has been done under it yet.

    Second I need to know if the ideas below are legal and/or efficient? Yes to one, no to one, could be neither or could be both. Legality above all else is important to me, even if that means it cost more in the form of set up or tax. This is my family business, we want to pay as little tax as possible but not at the expense of being exposed legally.

    The proposed model needs a Holding partnership or incorporation with my LLC and an International LLC located in Thailand. Together our companies will have combined equity of 100% of the Holding Company. The holding company will then be a minority partner (49% or less) in project companies we invest in located throughout the USA. Our investment will be in the form of discounted Industrial equipment. We will discount the equipment sold to the project companies in exchange for 30% equity and profit share. These project companies will sell products produced back to my operating company (my LLC). My operating company will then bring them to market and send profits in 70/30 split back to the holding company and project company. The holding company will then pay trademark fees to the subsidiary in Delaware and a licensing fee to the International Co in Thailand.

    Here are some other questions...pardon the redundancy. I'm going for clarity.
    Question #1
    I would like to know if I can reduce the tax burden by creating a subsidiary in Delaware who holds "intangible" assets (trademark, trade name). This Delaware subsidiary will receive payments by Holding co for trademark/trade name usage. The Toys "R" Us model seems to show these payments should be tax free. Is that correct? Can this subsidiary being wholly owned by the Holding CO?

    Question #2
    What kind of holding company should I create for this partnership? LLC or S Corp or C Corp?

    Question #3
    Can a foreign company have a majority stake of 51% in a USA based Holding Company?

    Question #4
    What kind of limits are there for holding companies in terms of payment to subsidiaries for trademark fees?

    Question #5
    Does this model fall under any franchise laws?

    Question #6
    Any recommended corp lawyers in Colorado? Our previous one is no longer in business. This is a start up, our parents generation does not have the same vision as we do so we are starting from scratch with not a much money. So recommendations would be appreciated.

  2. #2
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    Oct 2014
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    Default Re: Multi State Business, Holding, Operating Company, Invest Co and Subsidiary

    Quote Quoting AdvancedBioFuels
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    Question #1
    I would like to know if I can reduce the tax burden by creating a subsidiary in Delaware who holds "intangible" assets (trademark, trade name). This Delaware subsidiary will receive payments by Holding co for trademark/trade name usage. The Toys "R" Us model seems to show these payments should be tax free. Is that correct? Can this subsidiary being wholly owned by the Holding CO?
    Perhaps. The problem is that you'll likely have to pay tax in several states since you propose doing business in various states, and how much business you do in each state will matter. In the years since the "Toys R Us" trademark payment play two things have happened. One is that Delaware changed its laws to make that more difficult in response to push back it got from other states. And second, other states have adopted various rules which effectively prevent a business from shifting tax out of the state by parking intellectual property in a no tax or low tax jurisdiction. One would have to analyze the precise details of the business and the states in which it will do business to give you a good opinion on that. That's not something that can be done in just a few minutes and you ought not trust answers on this to anonymous people on the internet. Consult a tax attorney for help with this.

    Quote Quoting AdvancedBioFuels
    View Post
    Question #2
    What kind of holding company should I create for this partnership? LLC or S Corp or C Corp?
    Answering that also requires more information that I have here. I suggest consulting a business lawyer and tax lawyer both for that. The details of your business and the details about each of the owners matter in deciding what structure to use for this. But I can tell you this much: Since one of the owners of the holding company is a foreign person or company the holding company cannot be a S-corporation. S-corporations are limited to being owned by individual U.S. persons, trusts that have only U.S. persons as beneficiaries, or certain tax exempt organizations. You can form a LLC, LP, LLP, LLLP (in some states), or corporation so the choices of entity are broader than just LLC or corporation. But for U.S. federal income tax purposes that holding company will either be a partnership or a corporation. But how each of those entities may be regarded in Thailand and what impact that would have on your Thai partner's taxes in Thailand might differ significantly from how the U.S. treats it.


    Quote Quoting AdvancedBioFuels
    View Post
    Question #3
    Can a foreign company have a majority stake of 51% in a USA based Holding Company?
    Yes. Neither the federal government nor any state imposes any restriction how much a foreign company may own of an entity organized in the U.S. Foreign corporations own 100% of some entities in the U.S. It is not unusual at all.

    Quote Quoting AdvancedBioFuels
    View Post
    Question #4
    What kind of limits are there for holding companies in terms of payment to subsidiaries for trademark fees?
    There isn't a legal restriction that sets a limit on it. But for tax law purposes you'll find that at the very least states typically will not allow deductions that would exceed what some unrelated third party would be willing to pay on a license for that trademark. If you try to inflate the value of the trademark to gin up excess deductions that can come back to bite you with penalties.

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