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Question

There are 2 symbiotic start-ups, a B2B manufacturer and a B2B software developer/provider, where the later makes software specific to factory operations in the manufacturer’s industry. Both must work together in the early stages, share resources and are inherently tied together in terms of initial business development. The challenge is that when the software provider branches off to sell its wares to businesses, it will sometimes be selling software to competing manufacturers, and thus it needs to be distanced from its manufacturer partner once both businesses are fully operational.

Accordingly, given legal, ethical and financial factors, what’s the best way to organize these two business entities such that overall management control is maintained over both and resources can be shared, but with each facing their markets as a unique and distinct company/brand? An obvious solution is having a third “parent” company that owns/controls each of the two entities as distinct “child” companies/brands, but might there be a better way to organize these two entities to address the competing issues of economies of scale and management control versus the market’s need to perceive each company as being legitimate separate entities?

Corporate Development

Corporate Finance

Answer

Jason Knott answered

There are a lot of options here, but I think you may have already found the best option which is setting up a holding company to own separate subsidiaries. It's not uncommon for a holding company to create a conglomerate which owns many different businesses across multiple industries, even businesses that compete against one another. In your case, it would make sense for the holding company to act only as a shell company that owns the stock of the underlying entities, rather than an entity that performs day to day management functions for both subsidiaries.