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Multiple Businesses: You Need Clear Lines Between Them

June 9, 2017 // R. Shawn McBride // 2 Comments »

R. Shawn McBride recently spoke about having multiple businesses and keeping them separated. Here is the transcript.

Folks, it’s Shawn here with you again and I want to talk about putting clear lines between your business entities. Now some of you have pretty simple companies, you might have one single LLC, you might have one single corporation.  This is gonna be great stuff for you to think about in the future as you’re building your business.

Others of you have more complex entities. You’ve built up mass assets, you’re doing interesting things and somewhere along the line you’ve set up additional companies. Either a lawyer got involved and told you to set them up or for business reasons or you thought it was advisable to do this. We often see this with real estate, land holding in one entity, operating business in another entity. Sometimes we see people with multiple businesses and each business is a separate LLC or corporation. And this is generally an advisable thing to do. But we want to have very clear lines.

First, we want to understand why these entities are divided where they are. We need logical reasons why, different types of operations, different ownerships, those types of things. If we have a lot of companies, LLCs or corporations with all the same owners and all the same operations a lot of people think, “Oh I’ll separate each one into a separate company.” “If something bad happens that company will collapse and the rest of my companies will be fine.” Well, that may or may not be the case. A court may or may not respect that especially in a bankruptcy situation where the courts have great equitable powers to reset things the way they want.

First, is addressing that misnomer of just because you’ve done that doesn’t mean you have the protection. But if we have separated these entities out and we’ve done them right. We need to have intercompany transactions, we need to have documentation between the entities to make sure that these things will be respected. They need to be treated like companies. And one of the things a court will look at is, did you operate it like a company? Do you have employees, are you paying people for labor, are people doing labor in another entity and the other entity’s getting it for free? Is there a lease between the entities that the real estate’s being used by one entity while it’s owned by the other entity? These are the types of things that need to be done for blocking and tackling the clear lines between the entity.

The basic rule is as much as possible you want to treat them as separate businesses. Even though you might own them indirectly or directly you want to treat them as separate, so that a court sees that they’re operated as businesses, so they respect them. That’s gonna give you that asset protection in the event something bad happens. It’s also going to give you formalities for tax reasons and others to show that really these are different businesses. So, a lot of companies have some clean-up to do here.

So if you’re doing this and you have multiple entities involved, take a look at your books. Do you have sufficient records? Have you really treated these like separate companies? If not, let’s do a clean-up, let’s jump in there, let’s get it fixed. Either as a strategy session, I’ve worked with clients that kind of think about, how do we make this look and what is proper and right? And also there’s legal work. There’s some documentation there. If you’re interested in learning more about these types of issues, check out our blogs, www.mcbrideforbusiness.com/blog or www.mcbrideattorneys.com/blog. And I would love to work with some people one on one on these types of issues, help socialize these things and fix them for you before they become problems. So hope to check you out soon. Check out my page R. Shawn McBride Public, lots of great videos like this that’ll help you run your business better, do great things, really get you to the next level. And our YouTube channel McBride for Business Youtube channel, subscribe, check out the videos, share them with your friends. Let people know the great stuff that we can do to help them and let them get this content so they can do the great things they want to do. Shawn McBride signing off, hoping to talk to you all soon.

Make sure you download our free checklist to assess your business.

This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique.  Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer C.We.

 

About the Author

R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at info@mcbrideforbusiness.com or (214) 418-0258.

 

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2 Responses

  1. Wayne says:

    Hi Shawn. The way I see this in my head is that each business has to be a distinct castle with clearly marked trade routes between them. If one castle overlaps another, the walls touch, and they share resources, then from outside they will be seen as one castle and legally treated that way regardless of your castle charter. The appearance is what matters.

    • Wayne – that is a great analogy – to a castle with walls. Clearly the best is to have zero overlap. To the extent there is overlap it should be clearly shown why and the terms of the overlap should be negotiated as if the two sides were not related parties.

      Thanks for sharing and for a great visual to help this along. I may mention that concept in future talks on the topic.

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