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.

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commentor profile
Reply by an investor
from Harvard University in 150 Washington Ave #201, Santa Fe, NM 87501, 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.
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