Business Structure Considerations

Could selling off pieces of your business boost your exit plan?

The answer is it depends.

Before we start, business structure considerations are a complex topic requiring expert tax and legal counsel specific to your business. To learn about business structure considerations specific to your business, consult with your personal tax and legal advisors.

Something To Think About

With the proper business structure, you may be able to sell pieces of your business while maintaining the primary entity. With separate legal entities, you don’t have to sell your entire company when you exit.

Buyers may not want to acquire everything available in the company. Buyers may be interested in a specific product that your company offers. Think of products as potential value centers – products and value centers that could be carved out into separate companies.

Intellectual property assets such as patents, trademarks, copyrights, and trade secrets could also be carved out into a separate company.

These separate companies would be organized as subsidiaries under a Parent Holding Company. A Holding Company is a company that owns and controls other companies. The Holding Company does not produce goods or services or conduct business operations. In a typical Holding Company structure, the subsidiary operating companies manufacture, sell, or otherwise conduct business. Non-operating subsidiaries hold intellectual property, real estate, and other tangible assets.

Holding Company Advantages and Disadvantages

Like most things in life, there are advantages and disadvantages associated with the Holding Company business structure.

Pros include Holding Companies protecting the parent company from losses by subsidiaries, lower capital costs, and possible tax advantages.

Cons include reduced transparency and parent company control over subsidiary companies. There are also additional costs associated with administering subsidiary companies.

Business structure considerations are a complex topic. However, it’s crucial to examine your business structure to determine if a change could increase its value and whether the structure aligns with your business goals.