Legal Question in Business Law in Arizona

S-Corp to form LLC

If I own an S-Corp and would like to open a separate division, is it best for me to form an LLC for that separate division? It's really a new-business venture and I'm wondering how I can protect the S-Corp if this separate division doesn't work out? Also, an S-Corp CAN own an LLC - right? Can the LLC have multiple owners in addition to the S-Corp?

Asked on 1/04/06, 5:56 pm

3 Answers from Attorneys

Jared Simmons Simmons & Gottfried, PLLC

Re: S-Corp to form LLC


There are tax considerations regarding the choice of entity that should be examined before making a decision as well as management, and liability protections. An S-Corp can not own an LLC and it can have multiple members similar to the shareholders in an S-Crop. If you need any help or advice please contact my office.

Best regards,

Jared Simmons

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Answered on 1/04/06, 6:17 pm
Donald Scher Donald T. Scher & Associates, P.C.

Re: S-Corp to form LLC

It seems to me that it would be a good idea to form a new, separate entity for the new business venture, which you have stated is a risk and you want to protect your current business entity. You would need to consider a number of factors in order to determine if that new entity should be a corporation or an LLC, the characteristics of each and the tax consequences (advantages and disadvantages) of using one or the other. Most people just assume that an LLC is the "thing to do" and do not understand why you would elect to form a corporation or the LLC. Further, you want to review your business plan, and thus pick the new entity that will serve you best in the event of great success, and along the way to a successful business venture.

You can have the same ownership of both entities, however, your business plan may demonstrate the need for greater flexibility than the first entity owning the second. I suggest that you treat the new venture as a separate entity but with the same ownership, and thus maximize the benefit to both companies. So long as you maintain the formality of the separate entities, the failure of the new venture will not jeopardize the first company.

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Answered on 1/04/06, 10:25 pm
James Jenkins Jenkins Law Center PLC

Re: S-Corp to form LLC

I see that two responses are posted her for you, and my answer will be somewhat different. First of all, it is important in giving a legal opinion to know all the facts, which are not seen in the brief question posted. What kind of businesses are these companies engaged in? Are you personally the only owner of the S-corp? Are you married? Are there other shareholders?

The LLC form of business is very popular for small, closely held businesses, having basically the liability protection of a corporation but being taxed like a partnership without the formality and filings with the state that come with a corporation. Sometimes those formalities can be a benefit if there is more than one owner.

Something overlooked by most attorneys and business owners is the power of integrating trusts into the business plan, and coordinating those with the estate plan of the client as well. In our office we use trusts quite a bit for business as well as estate planning, for reasons which include estate preservation, protection of assets, protection of confidentiality, tax benefits and other factors. Trusts are very powerful tools when properly used.

You can get more information by making a request at our new blogger site, or by scheduling a free consultation at 480.835.1500. All business, personal and family factors should be considered in your decision, including coordinating your form of ownership with your estate plan as well as your financial plan. Thanks for the opportunity of weighing in on this case.

Best regards,

James D. Jenkins

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Answered on 1/05/06, 1:09 am

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