QUESTION
Can I separate two locations into two sepate legal business?
Asked on Nov 14th, 2013 on Business Law - New York
More details to this question:
own an S-corp. I recently signed a person guarantee and lease on a second location. I have a potential investor in my first location only. He would like to protect his investment and thinks I should separate the locations into two businesses because of the personal guarantee i just signed on the second location. Can I do this? If so, how? Thank you
2 ANSWERS
There are many ways to accomplish this. Probably the easiest way would be to form another legal entity (e.g. an llc, or a corporation) and have the first entity assign the lease to the second. Unless your lease is unusual, you will need your landlord's consent to do this, but the landlord should not have any objection as long as the personal guarantee continues. However, you have to make sure to run each entity separately, e.g. don't commingle funds, documents and make sure there is payment from one entity to the other for any transactions between them (e.g. don't just transfer inventory from one to the other freely), have separate corporate meetings, stationery, etc., so that any creditors will not be able to "pierce the corporate veil" of one of the corporations to get to the assets of the other.
Answered on Nov 14th, 2013 at 3:46 PM
Michael Stolzar
One way to explore is to contribute the assets needed for the business at location 2 for the stock of the company that owns that location and enter into a non-compete agreement with both entities. Just be sure that the appropriate assets are contributed fir the stock. I would run this idea past the potential investor and see whether or not it is satisfactory to hum or her. This is not intended to be legal advice, and is general in its nature. No attorney-client relationship exists or is formed by this information. Furthermore, this does not represent the views or opinions of LexisNexis or its affiliated companies.
Answered on Nov 14th, 2013 at 3:42 PM