Back in the old days, a businessperson sometimes conducted themselves simply as themselves – sole proprietors, putting their name, their money, their credit and everything else they had on the line with the businesses they created and maintained. Those days are, of course, long gone.
Recently the businesses commonly known as “Sears” and “Kmart” recently filed for bankruptcy. But in truth, one company didn’t file – 52 separate entities filed simultaneously, among which were…:
- Sears Holdings Corporation (the master holding company)
- Sears, Roebuck & Co. (the original Sears, or at least its corporate descendant) along with Sears Brands, LLC; Sears Brands Management Corporation; Sears Development Corporation; Sears Home & Business Franchises, Inc; Sears Holdings Management Corporation; Sears Operations, LLC,
- Kmart Holding Corporation, along with Kmart Corporation (as with Sears, the original or at least its descendant); Kmart.com, LLC; Kmart Operations, LLC; Kmart of Michigan, Inc.; Kmart of Washington, LLC; Kmart Stores of Illinois, LLC; Kmart Stores of Texas, LLC
- A&E Factory Service, LLC, along with A&E Home Delivery, LLC; A&E Lawn & Garden, LLC; A&E Signature Service, LLC
- Big Beaver of Florida Development, LLC; BlueLight.com, LLC; California Builder Appliances, Inc; FBA Holdings, Inc.; Florida Builder Appliances, Inc.; KBL Holding, Inc.
- Private Brands, Ltd.; ServiceLive, Inc.; SYW Relay, LLC; MyGofer, LLC; Wally Labs, LLC…
You get the idea. There are myriad reasons why businesses organize themselves in what seems to be a Byzantine fashion, but ultimately it boils down to a single thing: money. More specifically, how that money can be most effectively channeled to either keep the overall business structure afloat, to put it into the pockets of its investors and top executives, and/or to keep it out of the hands of the IRS.
As 2018 wound down a number of business opportunities presented themselves to me; six to be exact. None particularly excite me, have a chance of tremendous profit or have any risk of failure to the point where the result would be a pile of unpaid debts to creditors. While I’ve preferred the tried and true corporation, I’ve helped others set up every other type of business structure: limited liability companies, limited partnerships, joint ventures, even one cooperative. Each has advantages and disadvantages, but I thought with these six opportunities I’d stray from my usual, corporation-only structure and do something different. I’m creating two organizational pyramids of sorts, each with one non-profit corporation at the top (more on that later) and three limited partnerships (each representing one of the opportunities) underneath.
For example, Invisible, Inc. (actual name) is a non-profit corporation of which I am (at least for now) the sole member. Now here’s an important point to note: non-profit doesn’t automatically translate into tax exempt. Unless a non-profit corporation applies for and gets a tax exemption grant from the Internal Revenue Service? They’re liable for taxes same as any corporation organized for profit. In these cases I don’t intend to pursue tax exempt status because, as you’ll see, it won’t be necessary. Meanwhile, Invisible, Inc. will be the General Partner of the Amish Electric Company, LP (what can I say? I like oddball business names), Tech Resource Group, LP (I once worked for “Tech Resource Group, Inc.,” now defunct) and Cat Lady Treasures, LP (long story I won’t bore you with).
Here’s another important point to note: while being General Partner in a limited partnership gives you control over its operations, it doesn’t mean you’re the majority owner of the business. It does, however, make you liable for any and all debts incurred that can’t be paid by the partnership itself. So Invisible, Inc. could be the General Partner, own 1% of, say, Tech Resource Group, LP, and if Tech Resource Group, LP went bankrupt Invisible, Inc. would be on the hook to cover the losses. All of them. The limited partners, who’d own the remaining 99%? They’d lose invested capital and nothing more. I won’t disclose how much of these entities Invisible, Inc. or anyone will hold, but (a) as the sole member of Invisible, Inc., I control it, technically by electing its Board of Directors, (b) Invisible, Inc., as General Partner of the three limited partnerships, controls their operations, meanwhile (c) I, as an individual, am a limited partner of the three limited partnerships, with no personal liability should a bankruptcy occur. Remarkable.
No, none of these six entities will go bankrupt and leave anyone “holding the bag” or be owed anything. I don’t do business that way. I’ve had business failures, but never a bankruptcy; in the worst business failure of my life, I still ensured every creditor was paid on time, and pre-paid 13 months of rent to a leaseholder to fulfill the terms of the contract – it was my fault the business failed, not his).
One question I’ve left unanswered: “Why non-profit corporations?” Largely my answer is cost of administrative start-up and maintenance. In North Carolina, non-profit corporations are cheaper to form than for profits, and limited partnerships are cheaper to organize than LLC’s. Meanwhile for profit corporations and LLC’s are required to file annual reports together with $200 annual “filing fees.” Neither non-profit corporations nor limited partnerships have this requirement or fee. In short? I’m being cheap. I don’t need to be a shareholder to maintain control of the entities, and again these are small, experimental ventures. Every dime not spent is a dime not lost if they fail.
Anyway, we’ll see how this all goes. If nothing else it’s been fun resurrecting the name of a former employer and coming up with what I think are clever business names. My next three corporate names have already been chosen as part of this process: The Benevolent Corporation (courtesy of my 14 year old daughter), the Very Big Corporation of America (courtesy of Monty Python), and Philanthropists & Humanists United, Inc., or “PHUI” (courtesy of watching “The Great Dictator” starring the great Charles Chaplin). As for limited partnership names? If you have a suggestion for one? Drop me a comment… maybe I’ll make you a limited partner in exchange for your intellectual property idea. 🙂