46 2017 Issue 2 | GearedUp What isaholdingcompany? A “hold” investments asopposedtoproviding In goodsorservices. to limited liabilitycompanyorcorporationthatprimarilyserves in amore efficientway, andcan provide significant advantages. nities, allows forpoolingofassetsandtheabilitytotransferwealth explained inmore detailbelow,- leverage opportu yieldsstructural structure, whichis underneath it.Theholdingcompany/ entities atthetopofchainandaseriessubsidiary typically comprisedofanetwork oflegalentitieswithaholding capabilities. other non-competitive brands); andprovide flexible,streamlined tion (forexample,investments inreal estateand/orholdingsin estate planningandexitstrategies;allow diversifica - forportfolio asset protection andtaxefficiencies; accommodate yoursuccession, your ownership tomaximize andcorporateframework willserve attain your businessgoalsand objectives. If structured properly, A Look Under the Hood: A Look UndertheHood: A holdingcompanyisaspecialtypeofentity, typicallya The legalstructure forsophisticatedmulti-unitoperatorsis tial benefitsfor your operations andposition you to Your structure shouldbedesignedtoprovide thebestpoten- critical toestablishtheappropriate legalownership structure. s you expandyour network ofPlanet Fitness® clubs,itis

own, operateor entities. It doesnot each ofthesubsidiary interests orshares of of themembership owns alloramajority the holdingcompany franchise developers, unit Planet Fitness the contextofmulti- Structure Right For You? Is Your Ownership involving oneormore intermediateholdingcompanies underneath ments mayconsider implementingamore sophisticated structure tested orbreak down. relationships between individualowners orownership groups are the relationship. Deficiencies atthislevel canmean disasterwhen with disputesandotherissues that mayariseover thecourseof agreement (ADA).It shouldspelloutspecificprocedures indealing triggered underthefranchiseagreement andarea development needsofeachmixownershipparticular groups, aswell asissues owners andshouldbecarefully craftedtoaddress theuniqueand respects, themostcriticaltoolinmanaging relations between agreement fortheholding companyis,inseveral efficient andmay provide taxadvantages. certain interests invarious clubentities,simplifiestheprocess, ismore estate planningpurposesortofamilymembers,ascompared to interests inoneholdingcompany, formedfor includingtotrusts legalentitiesandprivate equityfirms. trusts, Issuing ownership owners oftheholdingcompanymayincludeindividualinvestors, the breakdown oftheindividualowners andinvestor groups. The operate theindividualPlanet Fitness clubs. entities thatown and entities are thelegal Thesubsidiary part). (in wholeorin entities subsidiary as anowner ofthe other thanserving business activities should have no manage clubsand Area developers with twoormore area development agree- It issignificanttonotethattheoperatingagreement or Generally, itisattheholdingcompanylevel thatyou find

by JustinM.Klein JoyAnn Kenny

GearedUp | 2017 Issue 2 47 RevLocal.com G , Growth Partners Chris Cavolo Je­ Falvo Je­ [email protected] 615.497.0694 Providing More Than 160 of Your Than 160 of More Providing Gyms with a Local Digital Strategy Digital with a Local Gyms Local Search & Review Marketing • No • No Marketing & Review Search Local The leader in personalized digital marketing. The leader in personalized digital and tremendous dedicated customer service. They have been They have and tremendous dedicated customer service. able to help us generate consistent positive reviews on .” Of course, selecting the appropriate corporate structure is structure corporate the appropriate course, selecting Of There is no “one size fits all” approach, as each ownership as each approach, fits all” “one size is no There “RevLocal solved our problem and got results; all with no contracts solved our problem and got results; all with no “RevLocal and the drafting and implementation of legal agreements between between agreements of legal and implementation drafting and the legal the various between the distinction Respecting the entities. and accounts, and obtaining separate bank entities, maintaining that all measures are coverage appropriate maintaining costs and burdens, These added addressed. carefully should be the substantial by outweighed often significantly are however, structure. the by benefits afforded operations. the commencement of your ideally positioned at may be there mindful that Be this is not always the case. However, under structure ownership unilateral changes to your on restrictions and generally agreements development franchise and/or area your Likewise, there Fitness. Planet by in advance, must be approved, considered. that should also be carefully may be tax implications are franchise and business are Kenny Klein and JoyAnn M. Justin firm of franchise law attorneys with the nationally recognized Planet Fitness franchise represents which Marks & Klein, LLP, can contact them at the United States. You operators throughout [email protected] or [email protected]. Put together a team of professionals Put together a team together and needs. Putting set of concerns, goals has its own group consisting of experienced attorneys, the right team of professionals and guide you you accountants and business advisors to advise or too late, to too early, is never is crucial. this process It through legal structure. your address Of course with this sophisticated ownership structure comes structure course with this sophisticated ownership Of As the number of operational clubs in your portfolio increases, portfolioAs the number of operational clubs in your increases, To illustrate the potential asset protection benefits provided benefits provided asset protection illustrate the potential To Below is a sample of the holding company-subsidiary is a sample of the holding Below Factors to consider Factors added costs, the need to establish separate accounts and records, so too does the need to streamline management and the admin- so too does the need to streamline functions. The formation of a istration of certain employment of a sub-chapter often in the form separate management company, serves to address S or a company, for flexibility and these issues. The management company allows and may also in compensating managers and owners creativity for the including allowing significant tax advantages, provide of losses that may otherwiserecognition be suspended if left at the the management company as the employer Structuring club level. for certain management and other personnel, if done properly, at the club entity may also serve of asset protection as a measure as it may isolate the club entity against potential liability for level, matters. employment-related Advantages in using a management company in using a management Advantages under the holding-company model, assume the above structure structure the above under the holding-company model, assume of in excess generates substantial profits 2, LLC is in place. ATL ATL from are transferred profits reserve. The excess a reasonable A holding company. the parent LLC, up to HoldCo, 2, LLC due to a data ATL 2, LLC class action lawsuit is filed against club a substantial judgment club members and involving security breach is forced 2, LLC ATL is awarded. of insurance coverage in excess the contained structure ownership The legal into bankruptcy. intact and of the network leaving the rest 2, LLC, damage to ATL undisturbed. structure: the ultimate parent holding company to effectively create “silos” “silos” create to effectively company holding parent the ultimate territory development area for each an ADA territory). (each neatly compartmentalizes in this structure the Organizing as the underlying as well the applicable ADA, territory, each ADA This agreements. franchise clubs and their respective operating to transfer an simplifies the ability other benefits, among structure, ADA territoryentire affecting the underlying clubs without and its and opera- territories or the remaining structure ownership overall investments flexibility to include also allows tions. This structure company or other brands under the same holding estate in real umbrella.