My brother and I are starting a hotshot trucking company. He has been driving for about ten years and he wants to get out on his own. I want to diversify my investments. My plan is to form two LLC entities:
1st Entity: Holding Company (100% Booma owned)
2nd Entity: Operations Company (51% Booma / 49% Brotha)
I'll buy the truck and trailer and the holding company (HC) will own them. I'll lease them to our operations company (OC) to help protect my capital investment and liability. I would like to finance the truck and trailer personally and sell them to my HC with the loan intact, but I haven't explored this option and I'm not sure the bank would allow it. Does anyone have experience? Any pitfalls (other than leveraging, which I understand and accept) I should worry about?
I'm going to set up both as regular (i.e. passthrough) entities for tax purposes. My full time job earns enough to avoid self-employment tax. If things go well and we start adding drivers I'll look at S-Corp election, but I don't think it makes sense for now. My contributions will be capital and general business knowledge with a little bit of bookkeeping (financial professional/MBA background). I've looked at the 100/500 hour requirements for passive/active involvement. Is there an advantage to being passive/active if I plan to work my current gig for the indefinite future? I can't see this as a full time gig for me unless we have 10 trucks running or something.
My brother doesn't have the financial footing to take quarterly distributions, so he'll be getting monthly distributions to keep food on his table. I assume this is easy in quickbooks. Any recommendations for this process? Any tips to make sure the taxation side is handled properly?
Ideally I would like the HC to own my 51% stake in the OC, but I'm not sure if this is best for taxes or liability. I will have a good attorney draft the operating and lease agreements, but I want to get as much info as I can before I start paying for time with the lawyer and CPA.
Basically, I'm having trouble finding good information about my specific setup since most people starting a business are operating the business too. This is primarily an investment for me, but I'll have to be involved on a regular basis to keep the wheels turning and make sure all the regulatory and financial boxes are ticked. I specifically worry if I'm structuring things correctly from a tax and liability perspective. Can it be done better/cheaper/simpler?
I don't necessarily need advice on whether or not the business is viable or my borrowing money to buy assets is a good idea. I can determine my own leveraging risks and I'm confident my brother has the contacts and ability to source loads sufficient to at least keep his bills paid and pay the leases. That being said, any general feedback is welcome.
I'm sure I missed important details, but I appreciate any feedback or suggestions you might have.