My favorite business structure for acquisitions

A common question I’ve seen floating around from first-time business buyers:

“What’s the best legal structure for a business acquisition?”

This is an important one, since your choice of structure will affect both your tax liability and your level of asset protection.

The good news is, your options are pretty straightforward.

There are two main structures to consider:

1. Set up a regular, no-frills LLC

You see this most often when someone does their first acquisition.

In this case, they form their LLC, and then transfer the assets from the business they just bought into that new LLC.

It’s simple, and it works.

But it’s not terribly efficient when it comes to saving on taxes, or protecting your assets from liability.

So I recommend that you take the second option instead as soon as you can:

2. Set up a holding company

There’s a few layers to this one.

First...

This holding company is also an LLC. But the difference is, it acts as a separate entity from your acquisitions.

As the parent company, it should hold 100% ownership of its subsidiaries (the companies you’re acquiring.)

This creates legal separation between the assets of each company, and allows you to consolidate the tax returns of all your subsidiaries.

Second...

You should elect for that holding company to be taxed as an S-Corp.

Then, you can condense all of your acquisitions’ profits into one place, and pay yourself a salary from the holding company.

This lets you reduce your self-employment taxes more than a regular LLC.

And third...

For the most secure structure possible, set up a trust that you have control over (or are the trustee of), and then give it 100% ownership of your holding company.

To recap, it goes like this:

You own the trust, the trust owns the holding company, and the holding company owns your acquisitions.

This way, you can do as many acquisitions as you want, and give your holding company ownership over all of them — so everything’s bundled into one tidy (and secure) legal structure that you own.

Easy, peasy.

When you get started with business acquisition, it can feel like there are a million questions to ask.

But when you break it down into digestible parts, like I did in today’s email?

Those questions always end up having simple answers.

Because what we teach inside Acquisition Ace isn’t a theoretical exercise — it’s a proven business strategy based on practical principles.

To learn more about how you can start acquiring profitable businesses (or invest as a silent partner in an acquisition)...

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And stay tuned for more business acquisition tips and strategies!