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TexLaw, Attorney
Category: Business Law
Satisfied Customers: 4430
Experience:  Internationational Commercial Attorney
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I have a company with several offices around CA. New offices

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I have a company with several offices around CA. New offices coming in other states soon. I wish to separate them into subsidiaries, majority owned by the parent but with a minority share owned by the employees of the subsidiaries. What is the best way to do that?

Thanks for the question. Separating each location into a different entity is going to become expensive as you will owe franchise taxes and corporate taxes on each entity. Franchise taxes in California are a minimum of $850 per year.

That being said, the best way to do it would be to incorporate a holding company which then is the owner of each subsidiary company. The holding company would simply file articles of incorporation for each different location, naming the location as a different entity, and being the single shareholder of that entity.

Probably the best type is to simply incorporate as a C-Corporation for the holding company and then a single member LLC (which is taxed as a partnership). The compliance costs are more, but the tax savings are probably going to be much larger in the end. (Of course depending on your revenue...if revenue is less than $350K, its a waste of time).

What are you trying to achieve through incorporation like this?
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Customer: replied 3 years ago.

Thanks for the answer. As stated, I wish to give a bit of equity to my key people in my satellite offices (I retain 60%, give away 40%). The issuance of stock, particularly 'ghost stock' that only comes into effect with an equity event, would be desirable. I also wish to insulate the parent, so that any litigation against the satellites does not effect the parent. Revenue is $3M+ per office, so $850 ann. doesn't scare me in the least.

Thanks. That should be relatively easy to do. I'd still recommend having the holding company, as this will insulate you personally from any sort of disagreement with an employee to whom you give equity at the satellite office.

If you are already incorporated, this company can act as the holding company. The LLC members would be you initially, and then when an equity partner comes in, you need to have a written operating agreement set up so that the employee/partner becomes a member of the LLC under you terms and is issued a membership interest (which is simply a document signed by both of you and is attached to the operating agreement). The LLC operating agreement is mostly going to state how the employee may be an owner, but is still under your employ and what rules the employee will have to follow.

Please let me know if there are any other questions I can answer for you.

Best regards,
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