S-Corp DBA Q

[rogercbryan]

I have an Ohio S-Corp which I own 100% of. I’m in the process of starting a new business with the same main function (brokering of services) yet I need to operate under a different name. So I filed for a DBA to be attached to my primary corporation. The one thing I didn’t consider is that as an S-Corp all partners need to have equal ownership (I think). The new business segment will require me to have a few partners each owning about 5% of the company while I maintain 65% ownership.

Do I need to do a whole new corporation or can I have a simple partnership agreement that can legally allow for the partners to work on one part of the business with out owning a piece of the original corporation?

I had also thought about possibly on entitling them to a % of profits as contractors instead of giving them ownership. Would that be the easiest way to make this work?

If you have references for your responses that would be appreciated or if you are simply speaking from experience please let me know that as well.

[jasaunders]

Subchapter S coporations do not require all shareholders to hold equal percentages. In fact, with coporations, you can create different classes of stock, giving different weights of ownership and voting rights to different segments. This is not possible with LLC's, where the company is owned by members.

[rogercbryan]

Why in the heck did I think an S-Corp had to have equal ownership? OK so the second part of the question would be; will I be giving up ownership in the entire corporation or can I be specific about the segment of ownership? Can I create a class of stock that is just for the secondary segment (the DBA)? I'm beginning to think that I'm making this way to complicated...

[StealYourDreams]

Someone beat me to it. You distribute the percentage of ownership and the distributions are pro rata based on the percentage of ownership.

Also, I realize it's semantics but the use of "partnership" should be eliminated.

Based on what information you have given you will be best served by starting another entity and having it either operate under the parent corp or be seperate...choice is yours. In your example of filing a DBA, the employees would own a portion of the original S-corp since that is the only entity.

If you want them to own 45% of the new venture you need a new entity.

[rogercbryan]

Someone beat me to it. You distribute the percentage of ownership and the distributions are pro rata based on the percentage of ownership.

Also, I realize it's semantics but the use of "partnership" should be eliminated.

Based on what information you have given you will be best served by starting another entity and having it either operate under the parent corp or be seperate...choice is yours. In your example of filing a DBA, the employees would own a portion of the original S-corp since that is the only entity.

If you want them to own 45% of the new venture you need a new entity.

Thanks for the info.... I was thinking that I could use the DBA for 3-6 months while I try to get the business profitable and I get the name trademarked. Once I know I have the foundation for longevity then I could incorporate it as a separate entity and then distribute stock to the partners.

I guess the main reason for the DBA right now is so that I can keep using the same bank accounts and I have a place to record investments/income for proper tax purposes.

Does that seem like a decent plan?

[StealYourDreams]

That seems like the easiest sollution. Make sure you can get the guys onboard, make sure it's going to fly and then set up a structure more conducive for your overall plan going forward.

This of course assumes that you can manage the liability you will be facing in the interim. The only downside I see is exposing your primary business and its assets to your new venture.

[GhostFac3]

I have to agree with StealYourDreams.

I would suggest creating a subsidiary of some sort under your primary. The issue of bank accounts and all is very minor when you take into account if something goes wrong, or somebody gets a wild hair and decides to steal from you... it is easily identifiable and separated.

The DBA is more of a end-user/consumer appeasement thing. At no time would I consider trying to push it to the limits of being its own entity, too much risk to your primary. Treat your off-shoots just as that, separate extensions of your corporate family.

[rogercbryan]

I have to agree with StealYourDreams.

I would suggest creating a subsidiary of some sort under your primary. The issue of bank accounts and all is very minor when you take into account if something goes wrong, or somebody gets a wild hair and decides to steal from you... it is easily identifiable and separated.

The DBA is more of a end-user/consumer appeasement thing. At no time would I consider trying to push it to the limits of being its own entity, too much risk to your primary. Treat your off-shoots just as that, separate extensions of your corporate family.

HUH? A subsidiary under what corporate structure? Banking is NOT a minor thing? Since the Patriot Act it is anything but easy to conduct financial manners with out legal documentation for the use of a fictitious name. A DBA is a 'end-user/consumer appeasement thing'? What exactly does that mean?

I'm just very confused about your post...

New new business segment is part of the same industry as the primary corporation so it is not like I have one brokerage company and then I'm trying to sell golf balls with the new company. The different segments just target different market segments that are not easily interchangeable.

I appreciate your response... just help me understand what it is you are saying...

[JLeezer]

Roger, your situation sounds similar to mine. We manufacture Christian clothing under our parent corporation, but have fictitious names filed for the three different brands we market them under (one for retail, one for fundraisers, and one for wholesale/drop ship). In the end, they are all made and sold by the same company, but our fundraiser customers can converse with Ministry Fundraisers Inc for all of their fundraiser needs while our retail customers can converse with Christian Apparel Outlet Inc for their personal needs. It is very much so for the consumer's benefit that we operate under multiple names.

[GhostFac3]

A subsidiary under your primary S-corp.. What AOL is to Time Warner.

I know about banking, when it comes to trying to combine different businesses it doesn't make much sense to me to try and throw everything that is done into one pot, if there is an issue that arises you can better handle it if it has accounts of it own. So in the big picture doing the extra legwork in getting a separate account IS minor.

DBA (Doing Business As) is a ficitious name, thats it. It's like me calling myself GhostFac3 on here, but my real name is Justin. Its just that, a fake name that I go by, but there are not 2 of me.

Now if you are trying to go towards a different market, you can either create a division or a subsidiary IMO. Your division can stay in the same back account and all, but then I don't see the need for the DBA, if you are dying to operate this entity under another name, then just create a subsidiary and be done with it.

The way I see it, the more separated these two can be (since you seemingly want them treated very differently), the easier it'll be in the long-run for you, especially if problems arise.

[jasaunders]

Roger, if you are worried about the new entity with employee ownership, a large majority of such cases would involve exercising the stock options after a period of time or some type of vesting schedule. Thus, it is unlikely you would need to physically hold the stock now. As long as whatever you are giving to your employees in the future has the underlying assumption that they will receive ownership when conditions are met and that stock exists at that point, I don't see a need to create a new entity now. From a legal point of view though, I'm not sure if there is any illegality in offering stock which does not yet exist or may not exist. But if you are simply offering stock of the company in the future, why not wait to create the entity and house everything under your current corporation. I'm not sure if I just made sense or not