Holding entity tax structure

searcher profile

August 29, 2023

by a searcher from Northeastern University in Miami, FL, USA

My partner and I are going to form a joint entity that will be acquiring an S-Corp through asset sale.

For tax planning, is it okay to form a holding LLC for the S-Corp that will be acquired or should we form an S-Corp that will be holding the assets of another S-Corp?

Thanks.

1
6
169
Replies
6
commentor profile
Reply by an investor
from Harvard University in Santa Fe, NM, USA
You should seek professional tax advice. That being said, if you are acquiring assets, than an LLC holdco is fine. If you are acquiring S-corp stock, then the acquired entity will cease to be an S upon closing (S corps cannot have LLC owners). To do a stock purchase, you could have the seller effectively convert the S to an LLC through an F reorg prior to the acquisition. Then you would be buying LLC membership interests and an LLC holdco is a good structure.

Do not use an S-corp as your acquisition entity. You will be severely limited in who can invest into the entity without busting the S election.
commentor profile
Reply by an intermediary
from University of Alabama in New York, NY, USA
My suggestions as a non lawyer, but a strategic manager, form a holding LLC for the S-Corp because it provides you more flexibility with your business activities, and tax deferrances.
commentor profile
+4 more replies.
Join the discussion