Yes, You Must Disclose Each Level of Ownership for Your Business
Video Transcribed: Tulsa Business Cannabis Attorney Isaiah Brydie coming at you with another video, and this video is going to be all about setting up a parent-subsidiary framework with your cannabis business operations.
Look, short and long, can you set up a parent-subsidiary framework with your cannabis business? Yes, you can. However, you are required to disclose each level of ownership when it comes to a cannabis business. Maybe your subsidiary company is the actual company that’s going to pursue a cannabis business license.
You are also required to report all parent companies of that subsidiary. Maybe you have one subsidiary business and you have a one parent company that 100% owns the subsidiary. You’re required to report that parent company, its name, its governing documents, corporate bylaws, operating agreement.
And then, further from that, you are required to report each one of the owners of the parent company itself. Maybe there are four owners who are also required to disclose each one of the four owners of the parent company that owns the subsidiary.
Now, aside from this reporting to the Oklahoma Medical Marijuana Authority, you should also understand a couple of other items when setting up a parent-subsidiary company framework. There is the possibility, with this more sophisticated filing, that you possibly would set up multiple other different businesses all under the same umbrella. One of the key things there is to make sure that you are not setting up your business operations for failure, in a couple of different ways. Mainly, from a tax perspective.
The last thing that you want to happen is what’s called a piercing of the corporate veil. One of the factors that a court would look to on piercing the corporate veil is whether or not there’s a common community of operation or control of the businesses.
Maybe you have three businesses that are all individual businesses, but each one of those three businesses does transactions with each other, and then all three of those businesses also have all of the same owners at the same percentages.
That would be setting yourselves up for at least satisfying one of the factors for piercing the corporate veil. Some of the ways that you can try to avoid that kind of framework is possibly mixing up ownership between the multiple business entities, possibly having managers for the different business entities, and then dictating what obligations and rights and authorities those separate managers have for each one of the respective businesses.
The framework that you don’t want to set up is for you to have two different companies on either side of a transaction, and then the same people or the same person signing and agreeing to a contract between the two companies. I, Isaiah Brydie, I’m signing as the owner of X, Y, and Z business to sell X, Y, and Z thing, and I, Isaiah Brydie, agree to purchase those same items under the capacity of this separate business.
I would be signing and I would be operating both of the businesses on either side of a transaction. That’s something that could really quickly be seen as an alter ego in the perspective of a court or in the perspective of the IRS. With that, with the companies being seen as alter egos of one another, then you have a framework where potentially the corporate veil could be pierced.
Now, keep in mind that a piercing of the corporate veil is something that is relatively rare to happen. But the key thing that you want to control for is actually setting up your business operations to where you don’t even have that concern or where you don’t even have to raise any defenses because you’ve done the work on inception in creating your business entities, that there isn’t any type of speculation on whether or not all of these companies only arose by a different name, for example.
If you have any questions, feel free to reach out to my law office at the contact information listed below. My name is Isaiah Brydie, I am an Oklahoma marijuana lawyer who is here to help you with any of your Oklahoma Cannabis business legal needs.