Good idea to split up a business?

[Terry V]

A few years ago I started a business that makes performance parts for a certain type of car. From there it's grown to a retail business offering not only my custom parts but aftermarket ones also. In addition I do powder coating and just bought a vinyl cutter to do decals.

With that said my "performance" business is getting pretty diverse. As a result I'm thinking about starting a holding company (LLC) then create LLC's for the performance, powder coating, and vinyl business. I also have a couple other ideas for businesses that would join later. It's going to be 4 LLC's instead of just 1 however I think it will help. I don't want powder coating customers to be scared off when they go to the site and see a bunch of performance parts.

Anyone have an opinions on this? Any other way to sorta focus the aspects of the company? What about the logistics/paperwork/legal crap involved with this?

Terry

[Mikey1205]

A few years ago I started a business that makes performance parts for a certain type of car. From there it's grown to a retail business offering not only my custom parts but aftermarket ones also. In addition I do powder coating and just bought a vinyl cutter to do decals.

With that said my "performance" business is getting pretty diverse. As a result I'm thinking about starting a holding company (LLC) then create LLC's for the performance, powder coating, and vinyl business. I also have a couple other ideas for businesses that would join later. It's going to be 4 LLC's instead of just 1 however I think it will help. I don't want powder coating customers to be scared off when they go to the site and see a bunch of performance parts.

Anyone have an opinions on this? Any other way to sorta focus the aspects of the company? What about the logistics/paperwork/legal crap involved with this?

Terry

Splitting up your business into separate entities sounds like a really good idea and is something alot of top business people do to limit one aspect of the business hitting the entire business hard.

As far as the legal side of things see a lawyer if your paperwork is already vast and complex, if not then you could do it yourself.

[akula]

Terry, when you say "It's going to be 4 LLC's instead of just 1 however I think it will help", your question is about the use of corporate groups and subsidiaries.

These are legal arrangements that exist to help managers accomplish certain goals such as decreased exposure to market downturns (as Mikey1205 pointed out), but more specifically, subsidiaries are used to improve creditworthiness, employee incentives, acquisition purposes, tax liabilities, and a bunch of other things

Now...as I've described in other posts, unless you are raising the issue of subsidiaries for a specific, tangible, financial or legal reason (i.e. lower tax liabilities) - rather than because you want to "focus the company", you are doing it for irrational reasons of mental accounting

There's nothing wrong with that, of course. It's a nice feeling to have the business split up into neat little legal compartments. It gives one a positive sense of organization.

The point: Make a decision on why you wanna use subsidiaries; either it's for specific legal/financial reasons, or the other, irrational, reasons. In other words,

Q: "Is it a good idea to split up a business?"
A: No, unless you have rational reasons for doing so.

[Terry V]

Well like I said before the main reason for doing it is to help expand the businesses individually. Yeah, they all have to do with car stuff but at the same time I might be missing out on a different group just because they see performance instead of powder coating/vinyl decals.

Another reason is for legal protection. Let's just say one of my custom products breaks and causes someone to wreck their car. Right now they can go after my whole business. Now when there's separate LLC's involved it's going to make it harder to do that...and with two LLC's in between them and me it will safeguard me personally more from it (at least that's what I've heard).

The mental accounting thing is another reason that's in the back of my mind. It allows me to see what group is more profitable then the other. Plus like mentioned 2 posts up if one area is sucking it won't bring down the others.

Looks like I have to look into the whole subsidiary thing and go from there. I think I'll meet with a lawyer or call up one of those online "business creating" companies.

Thanks for the info. I'm still open to opinions on this...

Terry

[akula]

Looks like I have to look into the whole subsidiary thing and go from there. I think I'll meet with a lawyer or call up one of those online "business creating" companies.

nice

tell the lawyer something like;

"I have a problem. my company is worried about risks such as creditworthiness, potential legal and tax liabilities, ability to retain employees etc. To solve this problem, I want you to carry out a risk assessment on the company, to see what risks and barriers might impact on my company's ability to meet current and future business objectives, such a listing or a trade sale in 2-5 years. Overall, I'd like some advice on how the use of subsidiaries (and other options) might mitigate my company's risk profile"

It' all about clearly explaining the problem you're having (i.e. you're worried that certain risks might get in the way of business objectives) and then brainstorming solutions with your counsel (such as the use of subsidiaries, tax shelters, ESOPs, changes to company constitution etc)