When partnering with someone who has a similar service business as you, is it best to do an actual merger or just create a new entity?

UPDATED: Oct 1, 2022

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When partnering with someone who has a similar service business as you, is it best to do an actual merger or just create a new entity?

I am in the fitness industry, and I am looking to partner with someone who is also a personal trainer. We are looking to merge our companies and partner to go into larger training space. The my business name is N1 Motion and my partner would be dropping his business name and fold it into N1 Motion. What makes the most sense for our working together under one roof? Should we do an actual merger or do we just create a new business name to function under. Neither of us have employees.

Asked on July 17, 2018 under Business Law, Alaska


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

The cleanest thing to do is to set up a new LLC (an LLC or limited liability company is the best form or entity for a two-person company like you describe) with an operating agreement that will address how the business will be managed (do you and he have equal power or authority? if so, what happens if you deadlock), how costs and profits are shared, what happens if one of you wants to leave the business (must the other buy him out?), etc. This way, you will have a new structure (no debts or obligations from other old business) with "rules" custom written for what you need. You can then transfer (e.g. gift) any assets of the existing businesses to the new one, including the name you want to operate under. Any attorney who handles or has experience with business formation can do this very quickly and easily for you.

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