In order to limit liability and take advantage of untapped markets, construction companies regularly take on a new identity. In some instances, this is as simple as taking on a fresh look, while at other times, the process can be just as complex as creating a business from scratch. In this article, a Nashville construction dispute lawyer from Cotney Construction Law discusses the advantages and challenges of creating a new identity for your construction company. For assistance creating or maintaining your company, consult the team of Nashville contractor attorneys from Cotney Construction Law.
An Assumed Identity
On many occasions, a company will change its identity, not to avoid liability, but to take on a new look. This could involve an updated logo and color scheme or an entirely new name. This is often the case when a construction company wants to expand, maintain privacy, avoid controversy, strengthen its credibility, and take on projects that wouldn’t normally fit its brand identity.
If you’re simply looking for a new start for your company, a “doing business as” (DBA) identity may be for you. A DBA is essentially a name change – a new coat of paint – for your company. You’ll still have your company’s legal name and your company will be taxed the same, but you’ll be able to do business under an assumed name.
Of note, in the State of Tennessee, DBAs are usually reserved for corporations, limited liability companies (LLCs), limited partnerships, and limited liability partnerships. Contractors working out of Tennessee can file a DBA with the Secretary of State. Construction companies wishing to expand into the State of Tennessee must first file for a DBA in their respective states before filing in Tennessee. By expanding into Tennessee, contractors can engage with new investors and joint venture partners and successfully grow their businesses. However, because a DBA is a simple name change, it won’t reduce liability like a completely new identity would.
A Completely New Identity
At Cotney Construction Law, we find the main advantage of creating a new business entity, or a new LLC, is to reduce liability and protect assets from potential legal disputes. You’re essentially avoiding the problem of keeping all your eggs in one basket. Were one of your businesses to come under fire, your other business would remain protected. This can be incredibly advantageous in an industry known for being litigious. In addition to reducing liability, LLCs benefit from potentially qualifying for a lower tax bracket (you file separately for each LLC) and from being easier to split and sell for a profit. Consult a Nashville contractor attorney from Cotney Construction Law with any questions regarding corporate transaction law.
Related: Lesser-Known Liability Risks
The Challenge of Operating Multiple LLCs
A tactic of creating a new LLC to limit liability is not without its drawbacks, however. While it’s perfectly legal to operate multiple LLCs, it may be impractical to do so. Multiple LLCs means additional fees, paperwork, and tax forms. Remember, you will need to track income and file taxes for each LLC. Conflicts of interest will also need to be avoided — when “one hand washes the other” (as the famous proverb states) an individual could find themselves in serious legal trouble.
Your business interests may even be jeopardized by the decision to create a new LLC. For example, you may find it more difficult to obtain a construction bond, which requires applicants to show evidence of their business’s long-standing experience and expertise. If your initial construction company has to take on liabilities in order for your new company to be bonded, what’s the point of a separate LLC?
Liability again becomes an issue with joint ventures. If you create a new LLC for the specific purpose of a joint venture, you will need a comprehensive joint venture agreement outlining all parties involved, individual responsibilities, how profits and losses will be shared, and where liability falls, among other provisions. Remember, while you and the unrelated company may be sharing the spoils of a partnership, you are also sharing liability for anything that can go wrong.
Determining What’s In Your Best Interest
Deciding what actions are best for your construction company can be incredibly difficult, let alone implementing them. In addition to weighing the pros and cons of taking on a new identity, you must contend with legal considerations and ramifications. Decisions such as these are best made with a loyal attorney by your side.
At our Nashville law firm, our team can provide sound tax advice and assist with mergers and acquisitions, strategic alliances, and the creation of all types of business entities. Whether you’re rebranding or would like to create a completely new business entity, partner with the affordable, on-demand attorneys from Cotney Construction Law.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.