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Posted by andrew.palumbo on March 30, 2007, 3:56 am
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My wife is a portrait and wedding photographer (shameless
plug under signature) and she currently operates her
business as a sole proprietorship. For the first few years
of the business, the money we lived off of was just whatever
the business earned after expenses (plus some debt we would
take on as needed). Now things have really taken off (and
look even better in the future), and we can afford to give
ourselves a budgeted income (i.e. salary), pay off that
debt, and turn a real profit.
In fact, things are going so well that we plan on buying a
new small business this year and having me manage it until
grows and earns enough to pay off the balance of the
purchase price and install a salaried full-time manager.
Then we rinse and repeat on additional small businesses and
grow a portfolio. I have an idea on how to organize things,
but I'm not sure of all the tax ramifications that might be
involved. Hopefully, somebody here can provide some input.
What I am thinking to do is this:
Set up a "administrative company" (owned solely by myself
and my wife) that employs my wife, my self, and any
additional employees for each of the businesses that we own.
This should let us consolidate administrative costs and
benefit programs. I would have that company lease
individual employees time out to the operating businesses as
needed.
This company may also own the equipment for each of the
operating companies and lease them back. Again, this would
be to consolidate administrative and book-keeping matters
and facilitate easier transfer of assets from one business
to another as needed.
I expect the administrative company to not turn much--if
any--of a profit or loss itself. Mostly, it would just
package wage and benefit costs (or break down equipment
costs) and pass them off to the operating companies so that
the books on the individual companies were individually
clean and simple: Revenue - COGS - leases = profit.
Now here's some questions:
1) Bluntly: is this organization scheme pointless or worse?
2) Should the "administrative company" specifically own or
not own the operating businesses? (Obviously the
photography business would no longer be a sole
proprietorship at this point, either way)
3) Does the income from leasing employees and equipment to
the operating businesses count as the kind of income that
would signal a personal holding company tax?
4) Would there be a preferred type of business entity for
this type of company? S-corp, C-corp or LLC?
5) Do you have any additional suggestions for someone who is
trying to operate what will eventually be a handful of small
business? So much information out there is about organizing
ONE small or ONE medium sized business, not about optimizing
the structure of several small businesses shared by one
owner.
Thank you so much,
Andrew
(and here's the shameless plug I mentioned:
http://www.jessicaverma.com)
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