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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 8899
Experience:  30 years of corporate, litigation and international law
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I want to start a chain of hotels nationwide. I want to be

Customer Question

I want to start a chain of hotels nationwide. I want to be able to have different investors invest in separate locations without piercing veil and getting mixed up w/ other locations/investments. What is the best way for me to set this up? Here is what I want to know:

1.) Do i set up a parent company, then each location is its separate company? Or no, all can be under 1 company?

2.) What is the best type of entity for this arrangement of multi-investors w/ multi-locations?

3.) If I want a combination of short term and long term investors how do i set this up? Short term = similar to a promissory note and return on $ but no ownership. Long term = ownership for longer holds.
Submitted: 1 year ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 1 year ago.

bizlaw :

Hello, I will try to help you. Please remember I just report or interpret the law, so the outcome may not be what you hoped for. Will all the hotels be under the same management? Will they also be part of the same franchise such as Marriotts or not? How much money are you looking to raise for each location? Will all the investment be raised through private placements or will you be looking to a public offering?

bizlaw :

I will check back in 10 minutees

Customer:

hello?

Customer:

Hi! In answer, I am just getting started so I have not completely decided the definitive answer to some of your questions. Let me try:

Customer:

1.) To start, yes all locations will be under same management. 2.) Yes, I would like to imitate the setup of a Marriott or Hilton so they would all be under one franchise; I would like to keep the majority of franchise ownership internal and not with investors. 3.) The amount raised per location will vary. Have not decided yet because each location will be a different size. 4.) I need to clarify what you mean by private placement vs public offering. Please detail.

bizlaw :

A private placement would be one with less than 35 investors. If you are looking for more than that then you would be doing some type of public offering and what is required differs signficantly.

Customer:

hi

Customer:

less than 35 for now total for sure, but does it matter if it is less than 35 total or per locations? is that enough info to answer my questions?

bizlaw :

One last question, will the inside investors who are in every hotel own a majority of each hotel?

bizlaw :

If the core investors will own a majority of each hotel, then you could have a parent and separate subsidiaries. If they will not be majority controlled by the core investors then you would have separate companies but each company would sign a management agreement so the management was provided by the same management group. The management agreement would be what holds all the companies together. As for having short and long term investors, that is a little trickier. You should keep the total number of investors to 35 or less. The short term investors who would be receiving notes would be one group. The long term investors would receive stock. To raise funds from each group of investors you would need a separate offering memorandum for each explaining the risks and nature of the securities they would receive. You can do these as regulation D offerings.

bizlaw :

If I have answered all your questions, please rate my answer excellent as that is how I am compensated. If you have more questions, please let me know. If the answer was especially helpful you can provide a bonus.

Customer:

1.) I am starting the business and intend to be the majority owner for every hotel opened, so yes, I guess I would be the "inside investor" (correct?) and I would own majority in each hotel. Given this, what is the best way to protect myself and set up as much corporate veil as possible? Should I still do a parent co? If so, what entity should that be (i.e. corp, LLC, etc.)?

Customer:

2.) What type of entity would the subsidiaries be?

Customer:

3.) Given what I have said, how would a management co. come into place if I want to have active participation in leading management as well?

Customer:

4.) I will keep investors to 35 or less. Were you implying per parent co. or per subsidiary or TOTAL?

Customer:

5.) You mentioned short term investors being one group and long term another. When you say group is this another entity? Or you mean to treat them as a group in a particular way with my offerings?

Customer:

6.) Which entity does regulation offerings D refer to?

Customer:

7.) Given all of the above, can recommend the best state to set these entities up in? I know some states have better tax advantages for setting up parent companies etc. and others may have better advantages with protection. Have any recommendations as to which states are good for these type of setups? I heard Deleware was good for special series LLC and Wyoming good for holding companies (owning land). Any ideas?

Customer:

P.S. Thank you for help so far. I will be sure to rate highly once finished :)

bizlaw :

1 - You could do a parent company. I think it would be better to do a straight C corp. To have subidiary pass through entities you have to own all of or the vast majority of the shares of an S corp subsidiary. If you use LLCs the fact that income is taxed to the members may impose a cash distribution obligation to at least cover the taxes that you may not want to be restricted by. Also your intercorporate dividends will be largely shielded from tax.

bizlaw :

2 - I suggest C corporations as subsidiaries for the reasons I said above.

bizlaw :

Since they are majority owned subsidiaries you can exercise your control to determine management. Under this scenario you can pick management and do not need to have a management contract. The management contract option will remain as an option and may be necessary to satisfy the requirements of major hotel chains who may insist on experienced managers.

bizlaw :

The 35 investors should be per individual hotel..

bizlaw :

5 short term investors would be offered notes as their investors. Long term investors would be offered stock. The notes and stock could be in the same hotel but the description of the risks for the two types of securities are different and could be markedly different. The notes offered to investors in one hotel would all be the same type of note. But there is no need to make the notes in a second hotel the same as the first.

bizlaw :

6 - The regulation D exemption is available for all the entities since what they are issuing will be considered securities. The three states often looked at are Delaware, Nevada and Wyoming. However, since you are doing a chain of hotels I would form in Delaware because their corporate law is very well developed and investors would be very familiar with that state. Second I would do Nevada.

bizlaw :

If I have answered all your questions, please rate my answer excellent as that is how I am compensated. If you have more questions, please let me know. If the answer was especially helpful you can provide a bonus.

Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 8899
Experience: 30 years of corporate, litigation and international law
Richard - Bizlaw and 3 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

New Subject, same topic:


 


When I set these corporations up, do i have to set up under same name in each state or no, i can set up under whatever name i want, but what's most important is that the brand is licensed to the corporation for use.


 


For example, if i own a franchise of McDonalds, would i create XYZ corporation and use the McDonalds logo/brand as a license OR would i have to incorporate as McDonalds #1, 2....500 etc. in each state AND use license.


 


I am just trying to understand if the actual name of the corporate entity matters so much or is just being able to use the brand whats important.


 


If the brand transcends state lines, then it sounds like whats most important is trademarking my name (as Hilton, McDonalds, etc.) did and then i license the usage of that name out to subsidiaries under whatever corporate name setup, correct?

Expert:  Richard - Bizlaw replied 1 year ago.

In your situation, you would license the brand. The corporation could have whatever name it chose but it would do business under the brand name. You definitely have to trademark your brand name. The owner of the brand name would be the parent company. In fact you might want to have the brand name owned in a separate entity and license it to the corporations.

 

If I have answered all your questions, please rate my answer excellent as that is how I am compensated. If you have more questions, please let me know. If my answer was particularly helpful you can pay a bonus.

Customer: replied 1 year ago.

what type of corporation would own licensing? a c corp again in deleware? also.when it comes to the ownership of land...like mc donalds owns its land, is that again another corp (which type) or can i consolodate any of these?


 


to summarize i have:


1 parent c corp that owns majority and sets up offers w investors


1 licensing corp that owns all brands (parent owns 100per)


1 mgmt corp to manage properties or is this the corp that would set up offers w investors and parent solelyserves to own and collect ownership/stock?


min 1 subsidiary corp that own locations and have max 35 investors eachs

Expert:  Richard - Bizlaw replied 1 year ago.
YOu could have a separate subsidiary that owns the land. However, since each hotel will have separate investors those investors probably would want their hotel to own the land on which it is situated. On the management, you can have the voting power of the parent which controls the board of directors of each corporation simply hire management for each hotel. There would be no independent management agreement. Another option is to have a management company handle the management of the hotels and then there would be a management contract between the management company and each hotel.

On the number of investors, it is a little more involved than just 35 investors. There are also restrictions on how those investors are obtained. YOu will need a lawyer familiar with securities to assist you in making sure your comply with the applicable laws on securities solicitation.

If I have answered all your questions, please rate my answer excellent as that is how I am compensated. If you have more questions, please let me know. If the answer was especially helpful you can provide a bonus.

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Richard - Bizlaw
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