Ideal Tax avoidance Scenario

March 08, 2023

by a searcher from Rutgers, The State University of New Jersey - Camden in Tampa, FL, USA

I am acquiring an e-commerce company, and the close date is anticipated for March 30th. I will be the only member/100% shareholder.

An investor wants to invest enough money to acquire a 15% equity position in Newco. The investor is not able to invest until approximately April 28th, a month after the close.

How should I set up the company and/or the 15% investment to pay the least in taxes?

I would like to have the LLC distribute the 15%/proceeds to me personally. But I’m not sure this is the best way to do it.
As of this moment, Newco will be an LLC.

Is there any advantage to creating a Holdco and having Newco reside underneath it as a subsidiary?
Does this help me with taxes at all? I’m open to any and all suggestions to pay the least amount of tax.
Thank you in advance for your support. Tom

Reply by a professional
from Seton Hall University in Morristown, NJ 07960, USA

Hi Thomas. Agree with ^redacted‌ that I'm not seeing enough facts here yet. Majority of your post is talking about equity transactions and taxes would only apply if you sold to the new investor directly at a net gain. Distribution back to you inside 30 days of acquisition sounds like a net return of capital but cant be sure without running the numbers. And your NewCo/HoldCo question will more than likely be answered for a legal reason than a tax reason. Tax conversation should be more focused on whether there are positive profits and whether the LLC should make a definitive C-Corp election or allow the losses to flow through as an LLC. Happy to have more of a conversation if you want. DM me and we can explore more.

Reply by a professional
from Villanova University in West Chester, PA, USA

Great input here. Echoing ^redacted‌'s comment above, there are two components for consideration here on structure - tax and legal. Both inform one another. So, it's great to have a collaborative conversation with all the necessary parties. On the legal side, you can set up your LLC to work as a single member LLC and contemplate the addition of future members so it's a seamless transition in a month. There can be advantages to having a holding company, but it's really a cost benefit analysis depending on your goals and vision for building the company. I would be happy to discuss this further. I'll send you a DM.

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