It's increasingly important for entrepreneurs to understand how a company with multiple entities should handle shared expenses, and how a company with multiple entities should be legally structured to avoid issues with shared expenses in the future. Every company has unique circumstances, so it’s critical for business owners to get professional accounting and legal advice tailored to their exact situation. Here is some insight to help your client figure out which approach will work best for their company.
Handling Shared Expenses
Business entities that have shared expenses must properly allocate those expenses between the entities according to the approved percentage allocation of the designated expense or direct expense from the invoice. In addition, a company with multiple entities needs to do one of the following:
1. Appropriately record and track the shared expenses using intercompany “Due to/Due from” (receivables/payables) accounts. They must include associated payments related to the Due to/Due from shared expenses. Or,
2. Record all expenses to one entity. Then, that entity issues invoices to the other entities for their portions of the shared expenses.
How to Structure a Company with Multiple Entities That Share Expenses
From an accounting perspective, there is no specific legal structure required for sharing expenses between businesses. However, business owners should contact a legal professional to determine if the shared expenses could cause any legal issues.
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