Preferred Legal Structure for Parent Company and Sub-sequent Acquisitions

April 11, 2021

by a searcher from Florida International University - College of Business in Miami, FL, USA

I'm interested in hearing your insight regarding the company creation. We need to create the Legal Entity for the Parent Compay
We were thinking of Creating a Delaware C Corp and Each Acquisition to be an LLC owned by the Parent company. However, as far as taxes what is the best way to reduce the impact on taxes when we are to pay personal Taxes?

1 Like

6 Replies

195 Views

Replies

Reply by a searcher
from Stanford University in Los Angeles, CA, USA

This is not legal or tax advice — you should consult an attorney and a tax advisor. That being said, I have represented a very significant number of private equity funds over my career (ranging in AUM from $100M - +100B, domestic and international), I can say that I’ve never seen a C Corp TopCo. I do private equity m&a all day every day and I’ve never seen that structure. Maybe in a venture or early stage scenario where you’re dealing with non-U.S. equityholders or LPs (VCs are reticent to fund into anything other than a C Corp for this reason), it may become more relevant because some jurisdictions don’t recognize a tax equivalent of the US LLC, but I’ve always seen a TopCo be an LLC. The OpCos down below may vary (LLC, C Corp), and there may be (i.e., more frequently than not in platform/add-on strategies) intermediatecos for debt financing purposes between the entities. Partnership taxation can get very complicated and can create significant issues at exit, both from the perspective of actually getting the deal done and from the perspective of the order of magnitude of proceeds that can tax-efficiently go to selling equityholders, so I would spend the money now and make sure you’re getting good advice.

Reply by an investor
from University of Pennsylvania in Chicago, IL, USA

LLCs for both is likely the best from a tax perspective. However, there are a lot of factors such as how many investors you have and the type of investors you have. Depending on the investor, they may prefer you have a corporation in your structure somewhere, often referred to as a "blocker". Also, if you have greater than a certain number of investors, I think you need to be a corp. Again, I think LLC is most likely right but it's hard to come to a conclusion without walking through the details with a tax accountant and lawyer.

+4 more replies.

Join the discussion