HoldCo Inc. owns…
85% of Startup Inc. (the other 15% is owned by a Partnership). Startup Inc. owns…
Startup IP LLC and Startup Operating LLC
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Startup IP LLC and Startup Operating LLC are disregarded. No question there as profits and losses flow to Startup Inc.
My question is this: Startup Inc. is permitted to consolidate under HoldCo Inc. because HoldCo Inc. owns more than 80% of Startup Inc.. This is good because all monies exchanged between HoldCo Inc. and Startup Inc. are untaxed and can be treated as journal entries. Additionally HoldCo Inc. can offset profits from Startup Inc. against losses in other businesses HoldCo Inc. owns (and vice versa). BUT, because there is a 15% shareholder in Startup Inc., are they entitled to 15% of any monies sent to HoldCo Inc. from Startup Inc.?
If yes, then Startup Inc. needs to be Startup LLC, taxed as a partnership, with an operating agreement that states that HoldCo Inc. is entitled to all profits and losses of Startup LLC while the 15% owner of Startup LLC is only paid in event of a sale.
The problem with this is a partnership (Startup LLC) won’t get consolidated under HoldCo Inc. and will need to file its own return.
I’m guessing this has a dead simple answer (are transfers between a holding company and a subsidiary shared pro rata if the holding company is not the 100% owner of the subsidiary?) I just don’t know it. Thanks in advance!
