Legal Question in Business Law in Texas

Re: Subsidiaries

1. Corporations MUST issue stock. Otherwise who owns the corporation, and who gets the profits?

2. A corporation may own stock in another corporation. The second may be a wholly-owned subsidiary of the first.

3. Check with a CPA as to tax consequences for different structures. Sub S corporations don't pay income taxes, only their owners do. They file informational returns. Sub C corporations pay income taxes, and the after-tax dividends passed on to the shareholders are taxed again as income.

Re: Subsidiaries

When you say that neither business will issue stock, maybe you mean that none of the stock will be sold to outsiders? Of course *someone* must own the first corporation, so some stock must be issued; but you could limit ownership to just one person if you wanted to. Likewise, with the subsidiary, the first corporation could be the sole shareholder.

Your question about the legal consequences is very broad. Perhaps you could narrow it down a bit. Are you concerned about the possible consequences of selling unlabelled products? Limitation of liability with respect to the first corporation? The owner(s) of the first corporation?

Likewise, your question about tax consequences is broad enough to warrant a book. There are all sorts of tax issues here: basis of transferred assets (including accounts, licenses and other intangible assets); foreign tax credit if there are foreign sales; whether the first corporation is taxed under subchapter C or S; and whether to treat the second corporation as a qualified subchapter S subsidiary, to name just a few issues.

The issue of filing consolidated returns is also rather complex and is something better discussed with professional who can be made aware of your exact situation.