Background and main purpose: I currently operate an underground pipeline corporation in California. I've been tossing around the idea of separating my personally owned equipment into a separate rental company, mainly to rent back to my pipeline corporation. At the moment, I run the equipment as a mini profit center(renting equipment to my projects internally). I'm planning to form a LLC to operate as a holding company with the pipeline and possible equipment rental under one holding creating a barrier between assets and thus making it tougher to pierce the corporate veil in the event something goes array. I own several 70k excavators, mini excavators, 10+ backhoes, several 5 yard loaders, water trucks, skids, vac trucks...ect. Questions/Explanations: (Before consulting CPA, Lawyers, and Financial Advisors I'd like to hear from folks who have done something similar) 1) Tax impact on both companies at the Fed and State level. (renting back equipment) 2) Asset transfer from one company to the other. (Buy, sell, rent, lease) 3) Overhead impact? (The rental company would pay the pipeline company for services like payroll, ect.) 4) If I eventually rent equipment to other companies than myself, what are some challenges that a heavy equipment rental company has? 5) In the slow times (down economy) what are some options for the equipment rental companies. (buying equipment vs. leasing vs. renting to own to others) 6) In house mechanic vs. outsourced? 7) Tax impact on owner operated equipment vs. pure rental equipment I appreciate the help/comments in advance.
What you are talking about has been done by many. I have some experience, though my plans were interrupted bu the great recession. 1, Taxes. You will pay more in terms of what it takes to maintain another entity, especially in CA I would recommend staggering the year end of the two companies. Adjusting invoicing dates can shift tax liabilities if you need to. The total tax should be the same other than the cost to maintain the second corp. 2, Transfer. Be aware of what value is carried on your books so that you do not create unneeded capital gains for the selling entity. I would recommend a sale. If you rent it, then rent it back, it may cause troubles. 3, Overhead. You need to decide. You may choose to shift as much as possible to the rental company and reduce costs on the contracting side. This will help with bonding capacity. 4, Outside Rental. You will need different insurance coverage to rent to others, and it matters if you rent bare or with an operator. 5, Good luck 6, Mechanic. With the size fleet you describe, I would have an in house mechanic or two, depending on total amount of machines and their condition, then outsource for major items. 7, Operator. You need to decide whether to have them all on the contracting payroll, or split. If they are split, you will create extra reporting for prevailing wage jobs.