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Author: ecw1970 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Strategy Date: 1/10/2007 11:58 PM
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My goal here is to split income between two companies to enable the owner to acquire the funds necessary to expand her business into additional franchises/stores.

1. Would it make sense for a LLC to own a franchise agreement or the leasehold improvements, that is subsequently rented/licensed out to a C-Corporation that operates the day-to-day operations? (I would think that the rent/license payment is a passive activity and therefore the owner will not incur any self-employment taxes.)

2.Or operate the franchise as a S-Corporation and create a management company C-Corporation requiring the S-Corpo to pay the C-Corp a flat monthly fee? (Fringe benefits will be available for the management employee(s) and the graduated tax rate will allow for a greater accumulation of funds necessary to acquire an additional franchise agreement, etc. My concern here is a personal holding company situation. Are management fees considered active or would be they be considered passive?)

3. Operate the franchise as a C-Corp and pay management fees to a S-Corporation? Discrimination rules will require fringe benefits offered to more employees of course but there will be no concern regarding the management fees unless they are excessive.

4. Or, just establish one company and avoid the income splitting strategy.

Thank you

Ed
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