What to do about a majority shareholder I both a C-Corp and LLC?

I just started a C-Corp for a construction company this year and I am thinking about opening a second company to re-rent the equipment I already own. I was thinking about an LLC for the new rental company but I was wondering what the legal implications were for me to own 51% of one company (C-Corp) and other 51% in another(LLC)?

Asked on March 12, 2014 under Business Law, California


Brook Miscoski / Hurr Law Office PC

Answered 6 years ago | Contributor

The truth is that there can be legal liability in this situation, definitely in Texas. For some kinds of organizations (e.g. certain charities) this would be completely illegal, although I'm guessing you probably aren't one of them. But regardless of the form of organization, most state's default bylaws for such organizations have rules against self-dealing. It doesn't matter what your percentage ownership is or whether it is a C-corp or LLC, or whether you have shareholders or members. All that matters is that you are using your position in one entity to provide yourself with a benefit by dealing with another entity in which you have an interest.

THAT SAID, if everyone "ratifies" (basically, agrees to) what you are doing, then that's usually okay.

The other thing you would worry about is whether your organizations will be considered separate organizations. If you don't charge market prices for the rental, it could look like the entities are really the same, especially if the ownership is the same.

This situation isn't really as simple as doing whatever you feel like with no negative legal implications. Especially if there are multiple owners to think about, you should ask an attorney in your area to help you put together a document that authorizes the deal and at a reasonable rental rate. 

Anne Brady / Law Office of Anne Brady

Answered 6 years ago | Contributor

There are no negative legal implications.  The difference will be that you will own shares of stock of the C-Corp and be a member of the LLC.  LLCs don't have shareholders, they have members.  You may choose to be the member-manager.

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