You own a store and you have an opportunity to open a second store in another town. The rent is not bad, there is no competition in that town, and there is a need for your product(s). How do you structure the new business?
There are three possibilities. One, you just open the store as part of your business. This has a simplicity to it. However, by doing so, the debts of the new store inure to the main business as well. So, perhaps you want to set up another corporation or LLC. This brings the final two options. One option is for you to create a subsidiary corporation to your current corporation. This separates liability issues and allows for a consolidated tax return which eliminates all internal transactions. So, if you are pumping cash in from the existing business into the new store, it is ignored for tax purposes. The other option is to set up the corporation as a brother-sister corporation to the existing one. In this case the same owner, owns both corporations. This brings the benefit of keeping the business separate and avoids imputed liability. It also allows the owner to take early losses on his or her personal tax return. The problem with that is that there is a lot of documentation needed when existing store puts cash into the new store. If its a loan, the new store has to make a note to the old store and pay interest. Otherwise, it could be deemed to be a constructive dividend to the owner of both businesses. If the existing store sells product to the new store there needs to be invoices and owner will need to document whether there was a mark-up or not, and if there was how you determined the mark-up. These could be avoided if you had a parent-subsidiary relationship. Likewise in the LLC realm, if you have the old store create the new store, then the new store transactions are imputed tax wise to the old store and you avoid inter-LLC transaction issues.
So, if you are creating a business consider whether or not you will be pumping money from one business to the other or having inter-business transactions. If so, you should weigh whether or not to create a subsidiary entity rather than a stand alone separate entity.