Running Separate Companies Won't Shield You from Licensing, Tax Burdens

Integrators are separating their electrical, A/V, and security businesses under one roof for branding purposes, but they can get caught with tax and licensing mistakes. By ChannelPro

More integrators are combining multiple disciplines into their businesses, but often pros will establish separate legal entities for each niche. Having a separate legal company name for your A/V company versus your security company versus your electrical company can make great sense from a marketing standpoint. But sometimes the rules required for licensing and Uncle Sam can make the situation murky, especially if you are using subcontractors for any one of the businesses. For example, in the state of New York, alarm company employees are required to be fingerprinted, have a state background check and cannot be a convicted felon. So does that mean employees devoted to an electrical business do not need to be fingerprinted and have background checks? According to legal expert Ken Kirschenbaum of Kirschenbaum & Kirschenbaum, while every state has unique requirements, there are some universal rules that integrators should follow if they don't want to run into trouble with the IRS and the state licensing board. "You can hire subcontractors, but they better be subcontractors," says Kirschenbaum. "And, in my opinion the subcontractors you hire need to be licensed and you should ensure that your subcontractor has properly documented its employees." Ultimately the integrator is responsible even if you use a sub. Regarding licensing, Kirschenbaum advises integrators that they should not "kid" themselves about operating multiple businesses. "If you intermingle your operations then you may as well be running one operation," he says. "Think of it this way... consider each of your operations run by two different owners, owners that don't like or trust each other and compete against each other. It would be strange that they share the same space; stranger still that they share the same employees, phone numbers, Web sites, accountants, bank, file cabinets, transfer money back and forth between them. Two real competitors wouldn't conduct their businesses this way and if you operate two or more businesses you have to be careful to separate them." He adds, "Operating multiple businesses can be motivated by a number of issues. It could be tax considerations, one company qualifying for work that the other doesn't, union vs. non-union, but more often than not the motivation is to separate the companies from the liability each is exposed to. To accomplish that you need to be vigilant maintaining their separate identities and operations." Integrators need to be very careful to document the duties of each employee to make sure they are truly separate.

This article was originally published by our content partner CE Pro

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