How do I set up a common business entity witha colleague, so that we can use the same name but pass through different incomeand expenses?

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How do I set up a common business entity witha colleague, so that we can use the same name but pass through different incomeand expenses?

My colleague and I currently own 2 separate financial planning practices at the same broker-dealer. Income and most expenses are separate; we only share office space and the cost of a common staff person. We currently both pay our shared staff 30% of of each of our own net incomes. We plan on leaving our current broker-dealer and open an RIA firm under the same name. We would like to use the same name because of more favorable pricing and marketing/website efforts. Our main goal is to flow our individual incomes and expenses through the same business name?

Asked on March 13, 2011 under Business Law, Massachusetts

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

I don't think you can quite do what you're thinking of directly: when you have a business entity, even one that receives pass through tax treatment (e.g. certain LLCs or a subchapter S corporation), business expenses go against the business income prior to allocating or distributing that income on the basis or respective ownership interests. So you could not each have different expenses for that purpose; all business expenses of the entity would be considered together.

What you could do would be to create a common entity which will own the business name and maybe the lease and other common assets. You also bill clients via that common entity. That common entity would in turn by owned by two other entities, one owned by each of you. Common expenses (e.g. marketing, website, etc.) would come off the income of the common entity; that income would be distributed to the owning entities; you could each apply individual expenses against your own business entity before seeing how much income is actually left to each of your respectively.

Consult with a businesses attorney and explain your needs and goals. He or she can help determine the best way to structure matters to get there.


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