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Why Might You Need Both a Corporation and an LLC?

Posted by Jonathan Krems | Sep 08, 2021 | 0 Comments

Before I get into this week's topic in the Freedom Friday blog, I want to wish all my readers a happy Thanksgiving.  I hope everyone is enjoying their family and friends this weekend, and that we are all thankful for the many blessings in our lives.  Tomorrow is a special day, it is “Small Business Saturday.”  “Small Business Saturday” was started the Saturday after Thanksgiving in 2010, as a counterpart to “Black Friday” and “Cyber Monday.”  Historically, “Black Friday” featured sales and deals from big box retailers, and “Cyber Monday” featured deals and special offers from e-commerce businesses.  However, “Small Business Saturday” encourages shoppers to patronize small, local businesses in their neighborhoods.  “Small Business Saturday” is also a trademark of American Express, as American Express created the first “Small Business Saturday” event in the Roslindale Village Main Street area of Boston.  Since then, “Small Business Saturday” has become a nationwide marketing campaign, benefiting small business retailers everywhere.

In last week's Freedom Friday blog, I discussed why you might need to incorporate instead of forming an LLC.  I concluded last week's blog by mentioning how forming a corporation can be a better fit in some industries, for example, the cannabis industry.  In today's blog, I want to develop that point a little more, because if you want to start a cannabis related business, you might need both a corporation and an LLC.

First, there are some tax advantages to forming a corporation structure for a cannabis related business.  However, you might really need both a corporation and an LLC for your cannabis related business.  In fact, you might need a family of business entities, including one corporation, and at least one LLC, in order to have a successful cannabis related business.  Here are four reasons why it might make sense to have a family of business entities for your cannabis related business:

1.  Different Business Activities

The first reason it would make sense for you to have a family of business entities for your cannabis related business is if your actually have different business activities envisioned for your cannabis related business.  For example, if you have a cultivation business (e.g. a growery), and also a distribution business, these different business activities should be contained to their own business entities, and each should be incorporated as a “C corporation” (as opposed to an “S corporation” which is a pass-through entity), in order to control tax liability.

2.  Bank Accounts

The second reason it would make sense to have a family of business entities for your cannabis related business is for setting up a bank account.  It is very common for a cannabis related business to have a corporation set up for the direct handling of the product, but a separate business entity, usually an LLC, for the sole purpose of having a bank account.  This separate business entity can also be set up as a holding company for the purpose of leasing equipment or real estate to the corporate business entity.

3.  Equipment and Real Estate

The third reason it makes sense to have a family of business entities for your cannabis related business is for the purpose of maintaining equipment and/or real estate.  As mentioned above, having a separate business entity formed as a holding company which can lease equipment and/or real estate to the corporate business entity limits the tax burden on a cannabis related industry.  It is important to hire an attorney skilled in forming not only these kinds of business entities, but also who can draft the contracts between the business entities, as well.

4.  Creating Brand Identities/Intellectual Property

Lastly, the fourth reason it makes sense to have a family of business entities for your cannabis related business is if you are seeking to create brand identities or have any intellectual property.  It makes sense for a separate entity to be formed to operate the brand apart from the retail or wholesale operation.  The separate entity would not own or sell any cannabis but would be in the business of selling such items as packaging or recipes. This would also be a distinct business activity, separate from retail or wholesale operations, each of which should have their own business entity.

If you are interested in starting a small business anywhere in Oklahoma, or if you have a small business and you are looking to grow, please feel free to contact me at [email protected].  For more information about Liberty Legal Solutions, LLC, please visit our website http://www.libertylegalok.com.

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...

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