Discussion:Alcohol Retailer Wondering What Kind of Entity and Which State to Register In

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Discussion Forum Index --> General Chat --> Alcohol Retailer Wondering What Kind of Entity and Which State to Register In

Cal2oo2 (talk|edits) said:

7 February 2010

I have a client who is looking to a start a new company. Essentially, they will be operating wine shops in over 20 states. Because they view liability protection for owners/officers as a large concern, they think that setting up in Delaware would be the best decision. Not knowing much about this issue, I can only suspect that they are right, but let me know if you think differently.

Now, what are people's views on which legal entity they should be? Keep in mind that they are looking to have nexus in over 20 states, so which legal entity would be easiest and most cost-effective for state tax returns? Also, they are looking to sell the entire business in 5 or so years.

This is not my area of expertise, but I am helping them on a number of tax issues that fall within my expertise, so they have retained me for all related advice.

CrowJD (talk|edits) said:

7 February 2010
You mean these guys can't afford to speak to a business law attorney? Or are you a one-stop shop? Check your E&O policy, and see if it covers you giving legal advice.

Or maybe they do have an attorney, and they've told the people to leave this decision to the tax guy. But, it doesn't sound like you know any more than the attorney.

If they don't have a good business law attorney, you should try to hook them up with one, and you can work together to help the clients.

Of course, the best question would be why in the world anyone would want to open up 20 wine shops right now, unless all 20 of them will be located on Wall Street. They can probably get a great deal on leases now, but there's a reason for that.

Jimi (talk|edits) said:

7 February 2010
Because liquor laws in each state are unique, I think you need more than just a business attorney. You need an attorney who specializes in liquor laws nationally.

Cal2oo2 (talk|edits) said:

7 February 2010
Thanks for the quick response. Jimi, you're right on point about my clients needing a specialized liquor law attorney, and that's exactly what they've done. The problem is that while their attorney has been a huge help in getting their liquor retail licenses set up,it seems he knows nothing about other types of law! Specifically, he cannot tell them which state they should set up in as their home state, and he also has offered them zero guidance about what type of legal entity (C-Corp, S-Corp, or LLC) they should employ. Now, CrowJD, to your point, I have indeed told them that they should really see an attorney who specializes in that area. We are a one-stop shop, and we are covered for certain kinds of legal advice, but we don't know anything about their questions because we have only set up California entities. That said, their business attorney knows nothing about the differences in state income taxes, so it seems he's not really helping them much.

I told them that I will help them find the right source of counsel. In the meantime though, I was hoping someone in this forum could help out. Not just because I am curious, but because I want to make sure that I can call "B.S." on a business attorney if he's offering my clients lazy advice.

So, with that said, I will try to reduce my questions into these key items:

1.) For a company that is seeking the most protection or its owners/managers and that is looking to operate in over 20 states, should it set up in Delaware? I would say yes, since they will have nexus in so many states anyways, they might as well pick Delaware as their home state, so that they receive better protection. From a tax perspective, it shouldn't matter if they are in Delaware or another state, since the annual fees are so low. Please let me know if anyone disagrees with this thinking. 2.) Now, the real question is what legal entity should they form. Certainly, they want an LLC, an S-Corp, or a C-Corp because they want the liability perspective. I would recommend that they choose to be an LLC or S-Corp so that they an avoid double taxation. So, the real question is: LLC or S-Corp? I would say LLC because they are simpler, but I have heard that being an LLC and operating in many states is highly problematic. Can anyone confirm that S-Corps are better for multi-state operators compared to LLCs? Also, they are looking to sell the business in 5 or so years. Does anyone know if it is easier to sell an S-Corp as opposed to LLC?

Appreciate any help.

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