4 ms·

I actually am a member of a sort of 3 man firm that on paper exists at 3 separate companies. We keep our intra-firm transactions operating on basically market

I actually am a member of a sort of 3 man firm that on paper exists at 3 separate companies. We keep our intra-firm transactions operating on basically market principles. "Can you do this part of job x consisting of this rigorously defined scope for y dollars?" Prices set themselves pretty fairly that way. If a job of a particular type starts to become more tedious, complex or time-consuming, the price adjusts naturally and continuously at an equilibrium. We're able to handle larger projects, offer greater breadth of services and service more clients than we would on our own, but we use one outward facing name so that clients feel they are interacting with one entity. We each have sub-speciallizations and clients are better served by the greater breadth of expertise. We almost always beat everyone on price too. Clients are often, but not always, shared. We each buy our own equipment, but we share it when needed and we share expertise. We each pitch in a 1/3 share for an office space to meet with clients. In practice it works wonderfully. But boy, 'the man' does not like that arrangement. They can't possibly fathom that there's an equal power dynamic, or that we really are separate entities, each with our own clients and business infrastructure. We just work together in only the ways each person finds mutually beneficial.

boppo1 4y ago
Who is 'the man'? If it's not your clients... what is the NYT writing hit pieces about you guys or something?
- coward123 4y ago
  He / she likely means the IRS or other government regulatory bodies.
- labster 4y ago
  The man be keepin us down.
- gruez 4y ago
  https://en.wikipedia.org/wiki/The_Man https://en.wikipedia.org/wiki/The_Man
- maroonblazer 4y ago
  Further, why would the govt ('the man') not like the arrangement? As long as they're paying their taxes why would they care how they're organized?
lelandfe 4y ago
So if you share equipment, share an office, publicly use the same name, frequently work jointly on projects... How is this fundamentally different from a single company with 3 departments? What advantages are you garnering? Are there purely tax advantages to this?
- Enginerrrd 4y ago
  Yeah so the biggest difference is, all expectations are financial. If you want to just leave for a month and input zero labor, we have no issues with that. You just still have to pay your share of rent. If we were partners, we'd basically have to have some sort of salary or profit-sharing agreement which would likely require all manner of careful management of expectations. So, for example, say we split profit 1/3, 1/3, 1/3. Well, how do you handle the situation where one partner is not putting out? What if they become less efficient for several months because of personal issues? What if one wants to just go travel for a month? What if one partner wants to be more lenient on their tax write-offs than others are comfortable with? Rather than hash out some complicated agreement with lawyers and all that, we just operate internally as independent companies. This way, problems are much more contained. If one partner starts fucking off, the others just stop sharing work. There is no "milking their hours" situation because that is reflected in the pre-work price negotiations. There's no unfairness in expectations, because we treat each other as separate entities and let the 'market' figure it out. Also, everyone has complete skin in the game on their own projects and own clients. I wouldn't say there are any inherent tax advantages except that you have complete flexibility to make it work for your own person.
justinpowers 4y ago
This is very interesting. Similar to a path I almost went down with some partners, but it fizzled due to too many unknowns and lack of energy to research them. Would you be willing to expound on your arrangement? Either here or privately. In particular… What legal structure are you each using? sole proprietorships, llcs, s-corps? (Assuming you’re US based) Are there any tax benefits/costs to this arrangement? Has the government hassled you regarding the arrangement? (It sounds like it has, but…how exactly and how did you respond?) Have counterparties hassled you or been scared off? Do they even “know” of the arrangement? Are there significant legal/transaction costs between the three of you? If not, is that simply because you have strong trust in each other?
- Enginerrrd 4y ago
  >What legal structure are you each using? sole proprietorships, llcs, s-corps? (Assuming you’re US based) We've used a mix of ALL of the above. Right now, it's two s-corps and an LLC. That's the nice thing, there's flexibility in how YOU want to structure YOUR stuff and do so optimally. UNFORTUNATELY, we're all California based, so sole proprietorships are probably out now. >Are there any tax benefits/costs to this arrangement? Yeah, so you lose out on economies of scale that would come by having ONE set of books, ONE accountant, an HR department, etc. However, that gets offset a bit by having total control and flexibility in how you structure your tax write-offs. On balance, I think I come out ahead this way, but it's a bit more unbillable work. >Has the government hassled you regarding the arrangement? (It sounds like it has, but…how exactly and how did you respond?) Yes, the CA EDD was kind of a nightmare to deal with over this issue during an audit which was for the year or two BEFORE the ABC test came into affect. It all mostly worked out but they just could NOT get it. We kind of lucked out there. >Have counterparties hassled you or been scared off? Do they even “know” of the arrangement? Basically, no, but they don't really know the arrangement. We have a sort of sub-contractor agreement that spells out who carries insurance liability for a particular job, and some other details. (I'm fuzzy on the details, it's been a while). >Are there significant legal/transaction costs between the three of you? If not, is that simply because you have strong trust in each other? Transaction costs are very minimal. We have contracts specifying the nature of payment and negotiations, and a clearly defined structure for who "owns" particular clients. That said, trust is paradoxically very high despite what I'd say is in some ways a very low-trust structure. The essence of the idea was to take all the stuff that would normally have to involve an army of lawyers and whatnot and convert it to something that can be managed as a free market. Beyond our core team, we have several people that form a loose coalition of professionals we occasionally rope in on projects as well. This lets us grow or shrink out team in a really quick-to-adapt way without really making anyone feel responsible for anyone else's livelihood. Since we're regular partners on projects, typical transaction costs and negotiations are very minimal.

boppo1 4y ago

Who is 'the man'? If it's not your clients... what is the NYT writing hit pieces about you guys or something?

coward123 4y ago
He / she likely means the IRS or other government regulatory bodies.
labster 4y ago
The man be keepin us down.
gruez 4y ago
https://en.wikipedia.org/wiki/The_Man https://en.wikipedia.org/wiki/The_Man
maroonblazer 4y ago
Further, why would the govt ('the man') not like the arrangement? As long as they're paying their taxes why would they care how they're organized?

lelandfe 4y ago

So if you share equipment, share an office, publicly use the same name, frequently work jointly on projects... How is this fundamentally different from a single company with 3 departments? What advantages are you garnering? Are there purely tax advantages to this?

Enginerrrd 4y ago
Yeah so the biggest difference is, all expectations are financial. If you want to just leave for a month and input zero labor, we have no issues with that. You just still have to pay your share of rent. If we were partners, we'd basically have to have some sort of salary or profit-sharing agreement which would likely require all manner of careful management of expectations. So, for example, say we split profit 1/3, 1/3, 1/3. Well, how do you handle the situation where one partner is not putting out? What if they become less efficient for several months because of personal issues? What if one wants to just go travel for a month? What if one partner wants to be more lenient on their tax write-offs than others are comfortable with? Rather than hash out some complicated agreement with lawyers and all that, we just operate internally as independent companies. This way, problems are much more contained. If one partner starts fucking off, the others just stop sharing work. There is no "milking their hours" situation because that is reflected in the pre-work price negotiations. There's no unfairness in expectations, because we treat each other as separate entities and let the 'market' figure it out. Also, everyone has complete skin in the game on their own projects and own clients. I wouldn't say there are any inherent tax advantages except that you have complete flexibility to make it work for your own person.

justinpowers 4y ago

This is very interesting. Similar to a path I almost went down with some partners, but it fizzled due to too many unknowns and lack of energy to research them. Would you be willing to expound on your arrangement? Either here or privately. In particular… What legal structure are you each using? sole proprietorships, llcs, s-corps? (Assuming you’re US based) Are there any tax benefits/costs to this arrangement? Has the government hassled you regarding the arrangement? (It sounds like it has, but…how exactly and how did you respond?) Have counterparties hassled you or been scared off? Do they even “know” of the arrangement? Are there significant legal/transaction costs between the three of you? If not, is that simply because you have strong trust in each other?

Enginerrrd 4y ago
>What legal structure are you each using? sole proprietorships, llcs, s-corps? (Assuming you’re US based) We've used a mix of ALL of the above. Right now, it's two s-corps and an LLC. That's the nice thing, there's flexibility in how YOU want to structure YOUR stuff and do so optimally. UNFORTUNATELY, we're all California based, so sole proprietorships are probably out now. >Are there any tax benefits/costs to this arrangement? Yeah, so you lose out on economies of scale that would come by having ONE set of books, ONE accountant, an HR department, etc. However, that gets offset a bit by having total control and flexibility in how you structure your tax write-offs. On balance, I think I come out ahead this way, but it's a bit more unbillable work. >Has the government hassled you regarding the arrangement? (It sounds like it has, but…how exactly and how did you respond?) Yes, the CA EDD was kind of a nightmare to deal with over this issue during an audit which was for the year or two BEFORE the ABC test came into affect. It all mostly worked out but they just could NOT get it. We kind of lucked out there. >Have counterparties hassled you or been scared off? Do they even “know” of the arrangement? Basically, no, but they don't really know the arrangement. We have a sort of sub-contractor agreement that spells out who carries insurance liability for a particular job, and some other details. (I'm fuzzy on the details, it's been a while). >Are there significant legal/transaction costs between the three of you? If not, is that simply because you have strong trust in each other? Transaction costs are very minimal. We have contracts specifying the nature of payment and negotiations, and a clearly defined structure for who "owns" particular clients. That said, trust is paradoxically very high despite what I'd say is in some ways a very low-trust structure. The essence of the idea was to take all the stuff that would normally have to involve an army of lawyers and whatnot and convert it to something that can be managed as a free market. Beyond our core team, we have several people that form a loose coalition of professionals we occasionally rope in on projects as well. This lets us grow or shrink out team in a really quick-to-adapt way without really making anyone feel responsible for anyone else's livelihood. Since we're regular partners on projects, typical transaction costs and negotiations are very minimal.