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BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience:  I am a business attorney. I represent individuals and companies with all business related matters.
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I am creating two new businesses . Business one will be the

Customer Question

I am creating two new businesses
.
Business one will be the nucleus and eventually will own several restaurants
Business two is a restaurant
The restaurant will be owned by business one and will pay a royalty fee every month to business one
Both businesses will be owned by the same individual
Additionally, I need an agreement between business one and a financier
.
What type of business should business one be? Sub chapter S, LLC etc
What type of business should business two be? Sub chapter S, LLC etc
What type of agreement should be between business one and the financier? Partnership etc.
.
The businesses will be established in Maryland
Submitted: 4 years ago.
Category: Business Law
Expert:  BizIPEsq. replied 4 years ago.

BizIPEsq. :

Hello, I will be assisting you

BizIPEsq. :

Will you be the sole shareholder / owner at this time?

BizIPEsq. :

and which company (or companies) will you be drawing a salary from (if at all)?

JACUSTOMER-0f7n5t5- :

Yes, sole owner

JACUSTOMER-0f7n5t5- :

salary from business two

JACUSTOMER-0f7n5t5- :

business two will pay royalty to business one each month and I will eventually draw from the business one account

JACUSTOMER-0f7n5t5- :

I can see drawing money from the business one account at the end of the year, leaving enough to sustain business one

BizIPEsq. :

s-corp is a limited entity and one its limitations is that a non-person cannot be a shareholder therefore business one cannot be an s-corp since if business two is an s-corp it would mean that an s-corp is a shareholder

BizIPEsq. :

for that matter business two cannot be an s-crop either because it will be owned by one

BizIPEsq. :

therefore you are left with either both being LLCs, both being c-corps or business one being s-corp and business two being LLC

BizIPEsq. :

the advantage of an s-crop over an LLC (especially a one member LLC) is that in an s-corp one is permitted to draw a reasonable salary and be taxed at ordinary tax level and then draw out the remainder as capital gains at a lower rate

BizIPEsq. :

unfortunately this would not be available in business two because it will be owned by business one. As a one member LLC you the SS+Medicaid taxes are not deductible which does result in a higher tax burden

BizIPEsq. :

if you are willing to take a salary from business one instead of business two then you could have business two an LLC and since it's a pass through entity redirect all the profits (and losses) to business one who would be an s-crop. In the s-corp you would then draw a reasonable salary and take the rest and dividends taxed at the lower capital gains rate rate

BizIPEsq. :

as far as the agreements, as you noted correctly you would some sort of a licensing agreement between the companies. Each company will needs its own operating agreement (for LLC) and by laws (for s-corp). Each company will also be making its own tax filing.

BizIPEsq. :

The good news is that both LLCs and s-corps are pass through entities so no double taxation despite the fact that there are two entities

BizIPEsq. :

as you can see this is a fairly complex structure and will result in significant costs as far as putting in place the legal paperwork and accounting. You should consider waiting on setting up a holding company until in fact you have more than one restaurant under company two.

BizIPEsq. :

Thank you for allowing me to assist you

BizIPEsq. :

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BizIPEsq. :

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