The Benefits and Costs of Forming a Separate Corporation

Commonly Referred to as a Foundation, for Fundraising or Other Unique Supporting Functions
John R. Wylie, Esq. and Stuart J. Lark, Esq. 
This article provided by the Engstrom Institute

A tax exempt nonprofit organization, such as a Christian ministry organization, may benefit from the creation of a separate corporation to carry on certain functions in support of the organization's primary purposes and activities. However, creating and maintaining a separate corporation may result in additional costs and administrative burdens on the parent corporation. Further, the potential benefits may be attenuated if the separate corporation is not structured so as to accommodate the unique circumstances and objectives of the parent corporation. Therefore, a nonprofit organization interested in obtaining the benefits of forming a separate corporation must carefully consider the costs and the extent to which the benefits apply to its particular situation.

This memorandum discusses the benefits and costs of forming and maintaining such a separate corporation. It also describes the alternative legal arrangements under which a separate corporation may be formed, and the steps involved in forming one. The term "Newco" will be used generally in this memorandum to refer to a newly-formed separate corporation. The term "parent corporation" will be used generally to refer to the nonprofit organization that creates Newco. These terms are merely descriptive and their use is not intended to imply any particular legal relationship or structure between the parent corporation and Newco.

I. Executive Summary

Forming a separate corporation can provide the parent corporation with a number of benefits. A separate corporation can be overseen by a board of directors having particular expertise in, and who are focused on, fundraising and investment management. Such a division of expertise would allow the board of directors of the parent corporation to focus on its primary corporate objectives and activities. Further, the assets held by a separate corporation may be insulated from the operating and fiduciary liabilities of the parent corporation (and vice versa). In addition, placing assets in a separate corporation may enable the parent corporation to present a financial position that more accurately reflects the true financial status of the parent's current and ongoing activities in a manner that is separate from the activities of the separate corporation. Along these same lines, a separate corporation can be used to help preserve the parent corporation's federal income tax status as a nonprivate foundation, while ensuring that the separate corporation qualifies for the same status. Finally, a separate corporation may be more attractive to certain donors who might be more inclined to contribute to a separate "foundation" and/or it may offer more and different opportunities to involve such donors in the organization to which they have made a significant contribution.

The value of these benefits may depend upon several factors, including the extent to which the activities of the separate corporation may be distinguished from the activities directly advancing the primary purposes of the parent corporation, the extent of the potential liability risks flowing from the activities of the parent corporation, the potential sources of income for the separate corporation, and the extent to which a separate corporation would be more attractive to prospective donors. In addition, the parent corporation should consider the costs associated with forming and operating a separate corporate entity. These costs include creating new corporate documents and applying with the Internal Revenue Service for tax exempt status, maintaining separate payrolls and financial statements, and following the corporate formalities associated with a distinct corporate entity. The parent corporation should also consider certain intangible costs associated with a separate corporation, including a potential loss of control over the funds held by the separate corporation (depending on the legal relationship between the two entities) and the relatively weaker financial strength of the parent corporation resulting from the fact that it would not have certain assets on its balance sheet.

There may or may not be any compelling legal or tax reasons for a parent corporation to organize a separate corporation, depending on the individual facts in each situation. Therefore, whether a separate corporate entity would be beneficial may largely depend upon how the other potential advantages discussed in this memorandum weigh against the potential costs and disadvantages.

If the parent corporation chooses to create a separate corporation, it must decide among several alternative legal structures for the new corporation. The legal structure chosen may enhance certain benefits while either diminishing others or increasing the risks of incurring certain costs. Hence, a careful evaluation of the alternatives would be advisable before proceeding with the formation of a new entity.

It may also be possible to carry on certain activities within a single corporate structure initially, and to incorporate those activities separately in a few years, if and when the cost-benefit analysis supports such action. However, certain activities, once established, can be somewhat difficult to transfer into a new corporate entity. These activities include the carrying on of sophisticated charitable fundraising programs, such as the issuance of charitable gift annuities requiring various state registrations, or the establishment of charitable trusts with the parent corporation being named as the trustee. Although it can be done, it may be more complicated to transfer these registrations and trusteeships to a separate corporation at a later time than to establish a separate corporation initially to carry on such activities.

Because of the multiple factors impacting the decisions that a parent corporation needs to make in regard to forming a separate corporation, it would be advisable to retain experienced legal counsel to evaluate the specific facts and circumstances in each case. We would be happy to review these issues, in light of such circumstances, with any interested organization.

II. Potential Advantages of Organizing a Separate Corporation.

Creating a separate corporation has provided a number of benefits to nonprofit organizations in certain circumstances. We will briefly summarize below certain of the advantages that some of our other clients have experienced in forming separate corporate entities. The value of these benefits to any other nonprofit organization may depend upon the particular objectives and circumstances of that organization.

1. Opportunity for Greater Focus on and Expertise in Fundraising and Investment Management. Many organizations that have considered the formation of a separate corporation to support its activities have been motivated by the notion of having a separate entity focused exclusively, or at least primarily, on fundraising and investment management. There is often a sense that by creating Newco, the parent corporation has the opportunity to identify board members who have significant expertise in these areas (as compared, at least in some instances, to the board members of the parent corporation who are more focused on, or who have more experience and expertise related to, the primary ministry purposes of the parent corporation). Operating under the separate corporate structure of Newco might give these individuals more flexibility to develop fundraising products that have not been used by the parent corporation (e.g., charitable remainder trusts, charitable gift annuities, donor advised funds, etc.) or to use investment strategies aimed at maximizing the return on the assets transferred by the parent corporation to Newco.
   
   
2. Presentation of More Desirable or Accurate Financial Position. Some religious or charitable organizations with substantial endowments and reserves have expressed a concern that the existence of these funds inhibit their ongoing fundraising efforts. The organization's balance sheet conspicuously discloses the existence of these substantial funds and contradicts efforts to convince donors that the organization is in need of significant new contributions. Some of the clients with whom we have worked have concluded that forming a separate corporation may provide an opportunity to show donors a balance sheet that does not appear to be as "healthy" because of the absence of the endowments and reserves. In some respects, this type of balance sheet would more accurately depict the financial position of the organization where it is in fact committed to preserving these endowments and reserves for designated purposes. However, recent changes in accounting standards requiring consolidation of the financial statements of certain affiliated organizations, as well as other proposed changes to those standards, may reduce the availability of this perceived advantage. Ultimately, the legal relationship between the two organizations will probably determine the extent to which separate financial reporting is permissible.
   
   On a similar note, recently adopted accounting standards require nonprofit organizations to reflect pledges as income at the point in time when a pledge is made as compared to when the income is actually received. Certain of our clients use Newco to "receive" such pledges and reflect those pledges on its financial statements. The parent corporation's financial statements only reflect income when donations are actually made to Newco and subsequently transferred to the parent corporation. However, this is an approach that should be reviewed carefully with the parent corporation's auditing firm prior to implementation.
   
   
3. Creation of Other Opportunities for Involvement and Connection. Vesting Newco with an important, prestigious purpose closely tied to the mission of the parent corporation can be useful in creating additional opportunities for useful roles for staff members, large contributors and other supporters. For instance, the parent corporation may wish to involve substantial donors as directors of Newco, with the hope that those individuals will then feel greater ownership of the mutual goals of both entities and become more active in their activities. Some of our clients have intentionally had very large boards for Newco and have "rewarded" large donors with a seat on the board of Newco. The parent corporation might consider using a Board of Reference or an Advisory Board to create similar opportunities, although that approach may not generate the same degree of "ownership" and loyalty as would an actual board appointment.
   
   
4. Possible Greater Flexibility in Dealing with Public Support Tests. In some cases, Newco can be useful in providing additional flexibility to the parent corporation in dealing with the numerical tests established by the Internal Revenue Service ("IRS") for qualifying as a public charity. The parent corporation may be able to transfer to Newco certain types of assets, such as investment assets, so that the passive income those assets generate does not adversely impact the ability of the parent corporation to qualify as a public charity.
   
   
5. Possible New Donor Opportunities. Some of the clients with whom we have worked have formed Newco, and have given it a name which includes the term "Foundation," out of a belief that certain donors are more likely to give, and particularly to give large donations, to a "Foundation" formed to support the parent corporation rather than to the parent corporation itself. These clients have indicated that they believe donors feel their contributions, such as those given to establish or fund an endowment, are less likely to be used for operating expenses if they are given to a "Foundation." Establishing a "Foundation" for this purpose is relatively common in the world of higher education. While legal restrictions could be imposed by donors on the use of contributions by the parent corporation that could achieve many of the same goals of the donor as giving to a "Foundation," certain of our clients have, nevertheless, elected to form Newco, using "Foundation" in its name, in an effort to attract new or larger gifts from its constituents.
   
   
6. Liability Protection. Despite the protections of insurance, many parent corporations are frequently concerned that a catastrophic uninsured liability could wipe out its endowment and reserves, including the assets that are part of separate divisions or funds. Although this type of catastrophic liability might normally be rare, we have on numerous occasions discovered significant gaps in insurance coverages upon review. The mere fact that a plaintiff could possibly reach such assets might force the organization to offer settlement of a lawsuit on a less favorable basis than if these assets were not accessible.
   
   The desire for liability protection often leads for-profit corporations to form corporate subsidiaries. Likewise, nonprofit corporations may secure similar liability protection by forming a separate corporation to hold and manage major assets and/or raise significant contributions. Newco assets may be protected from the parent corporation's known and unknown operating liabilities (e.g., employment problems, accidents, etc.), as well as potential liabilities resulting from the parent corporation acting as a fiduciary (e.g., as trustee of a charitable trust). However, there is some uncertainty in the law as to whether Newco would provide liability protection for liabilities of the parent corporation where there is a close relationship between the two entities. The general rule in corporate law is that one corporation is not liable for the debts and obligations of another corporation unless a plaintiff or creditor can "pierce the corporate veil" by demonstrating that one of the corporations is merely an agent or instrumentality of the other. In such an instance, a judge or jury might hold one entity liable for the debts and obligations of the other.
   
   The courts frequently consider a number of factors in evaluating whether to pierce the corporate veil. One important consideration is whether one corporation exercises day-to-day control over the activities of another corporation. Such control can be found as a matter of practice, such as in how the affairs of the two entities are conducted, or it can be found in the governance structures of the two organizations. For example, if the officers of the two corporations are the same, it is quite possible that a court would not find them to be separate corporate entities for liability purposes. Likewise, if the members of the boards of directors of two corporations are identical or nearly so, a court might reach a similar conclusion. This would particularly be likely if the facts showed that the officers were not observing formal corporate boundaries or that the transactions between the two entities were not being conducted on an arms-length basis.
   
   Another factor courts consider is whether Newco has a bona fide purpose for existence other than mere liability protection. If the court determines that the only reason Newco exists is to shield assets of the parent corporation from liability, it may refuse to honor the corporate liability barrier.
   
   Certain activities of nonprofit organizations may result in significant contingent liabilities similar to, for example, a nonprofit organization that carries on high risk adventure activities with youth, or a for-profit corporation operating in the environmental arena. When such activities are present, liability protection should be a factor that is evaluated when analyzing the benefits of a separate corporation. However, this factor should be properly weighed with other important considerations.

III. Potential Disadvantages of Organizing a Separate Corporation.

The possible disadvantages of forming a separate corporation appear to include the following:

1. Additional Costs and Administrative Burdens. There undoubtedly will be some additional costs in forming and maintaining Newco. These costs may include such things as: (a) the costs of maintaining separate employee payrolls and fringe benefit plans, (b) the costs for preparing separate audited financial statements and filing a separate annual tax return (Form 990) for Newco, (c) legal costs of forming Newco and obtaining tax exempt status; and (d) various additional administrative and operational costs such as stationery, logo development, secretarial support, and the like. Depending on the activities that will be transferred to Newco or carried on by it, there could also be other costs related to charitable gift annuity registrations, transferring trusteeships, and filing charitable solicitation registrations. There will also be some additional corporate formalities that will need to be respected such as holding separate board meetings and maintaining separate corporate records.
   
   
2. Potential Loss of Control. From a legal perspective, the parent corporation can retain the right to appoint the board of directors of Newco (including the right to remove and replace the board of directors). However, because of personal relationships involved, the parent corporation may be reluctant to exercise this right when only minor disagreements arise regarding positions taken by Newco's board of directors, and perhaps even when major policy issues are involved. Therefore, the parent corporation may, from a practical perspective, lose some degree of control over the assets and activities of Newco.
   
   
3. Loss of Financial Strength. The transfer of certain endowment assets and reserves by the parent corporation to Newco will reduce the fund balance reflected on the parent corporation's balance sheet. Although this may have certain advantages as discussed above, it could also make lenders reluctant to loan funds to the parent corporation, without accompanying guarantees from Newco.

IV. Alternatives for the Legal Structure of a Separate Organization.

The extent of the potential benefits resulting from the creation of Newco often depends upon the way in which Newco is structured, including its legal relationship with the parent corporation. This section describes the alternatives from a legal perspective that will impact the benefits realized by the parent corporation from creating Newco.

1. Trust or Corporate Form. Newco may be created in the form of a trust or of a corporation. As a general rule, the trust form can be somewhat simpler to establish and maintain. The terms included in the trust documents can indefinitely limit the uses of the trust funds, unless the trust is revocable, in which case the board of directors can recover the funds and use for them for other purposes. Although the trust form can ensure that funds will be used for specified purposes, the corporate form provides a number of distinct advantages in terms of flexibility to conduct creative fundraising activities based on changing needs, and to manage investment assets. The corporate form also provides clear statutory limitations on liability for the directors and officers and is generally more familiar to prospective board members and the general public. For these reasons, the corporate form is used much more commonly.
   
   
2. Tax Exempt Status under IRC §501(c)(3). Newco may qualify for exempt status under IRC §501(c)(3) regardless of whether it is created in trust or corporate form. To qualify, Newco must be organized and operated exclusively for religious, charitable, educational, or certain other specified purposes. In addition, no part of the net earnings of Newco may inure to the benefit of any private individual.
   
   
3. Exempt Organizations as Public or Private Foundations. Organizations exempt under IRC §501(c)(3) are considered private foundations unless they qualify under IRC §509(a) for public (i.e., "nonprivate") foundation status. Private foundations receive less favorable treatment under the IRC than nonprivate foundations. With one limited exception, contributions to private foundations receive less favorable tax treatment for the donor than contributions to nonprivate foundations.[1] Also, private foundations are subject to spending and investment limitations, as well as a 2% excise tax on investment income, that do not apply to nonprivate foundations. Finally, private foundations are prohibited from entering into any transactions with "insiders."

There are three ways that Newco could qualify as a nonprivate foundation under IRC §509(a). We will briefly summarize each below.

1. Nonprivate Foundation Status under IRC §509(a)(1). To qualify under IRC §509(a)(1), Newco must receive greater than one-third of its income from public contributions (including the government). As an alternative way to qualify, Newco must receive at least 10% of its income from public sources and demonstrate under all the "facts and circumstances" that it is responsive and accountable to the general public.
   
   In calculating whether sufficient income has been received from public contributions, donations from any single source are limited, for purposes of doing these calculations only, to 2% of Newco's total income.[2] Hence, contributions from major donors most likely will be considered a part of Newco's total income, but only the portion of each of these contributions that represents 2% of Newco's total income will be included as income from public contributions. As a result, Newco may not satisfy the one-third public support test if its donor base consists of only a few large donors.
   
   
2. Nonprivate Foundation Status under IRC §509(a)(2). Newco will qualify for nonprivate foundation status under IRC §509(a)(2) if it receives more than one-third of its support from certain public sources and not more than one-third of its support from certain investment and business sources. In contrast to the public support test under IRC §509(a)(1), the public support portion of this test includes support from membership fees and exempt function income. However, the public support portion excludes entirely any contributions from a single source that exceeds both $5,000 and 2% of the organization's total support. Here, again, Newco may not satisfy the public support portion if its donor base consists of only a few large donors. Further, if Newco does not anticipate having revenue from membership fees or exempt function income, it would be less likely to qualify under IRC §509(a)(2) than under IRC §509(a)(1).
   
   
3. Nonprivate Foundation Status under IRC §509(a)(3). A nonprivate foundation under IRC §509(a)(3) may receive substantial gifts from major donors without jeopardizing its nonprivate foundation status. Therefore, Newco can qualify as a nonprivate foundation under IRC §509(a)(3) without reference to its sources of financial support.
   
   To qualify as a nonprivate foundation under IRC §509(a)(3), there are certain requirements that must be satisfied related to the relationship between Newco (called a "supporting organization" under IRC §509(a)(3)) and the organization(s) that it supports (including the parent corporation). A supporting organization must be organized and operated solely to support one or more organizations that qualify under IRC §509(a)(1) or (2) (herein referred to as the "supported organizations"). Although the specific requirements can be somewhat complex, a supporting organization generally must satisfy three requirements:
   
   
1. It must be organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of, one or more specified supported organizations. This test can be satisfied by limiting the purposes in the articles of incorporation to the purposes of the parent corporation or by limiting the organization's distributions, grants and other support to the parent corporation and other specified supported organizations, if any. Further, the organization must engage solely in activities which support or benefit the parent corporation.
   
   
2. It must be operated, supervised, or controlled by or in connection with one or more supported organizations (as determined by one of three alternative "Relationship Tests").[3] This test could be satisfied by providing for the governing body of a supported organization to appoint a majority or all of the directors of the supporting organization.
   
   
3. It must not be controlled directly or indirectly by certain "disqualified persons." For this purpose, disqualified persons generally refer to the individuals (and their family members and corporations they control) who are substantial contributors to the supporting organization. The term does not include publicly supported organizations. This test can be satisfied by ensuring that the aggregate voting power of all such persons is less than 50% of the voting power of the supporting organization.

There are certain types of fundraising tools that may not be available if a supporting organization under IRC §509(a)(3) is established. For example, supporting organizations cannot establish pooled income funds. Further, because a supporting organization can only support a designated class of beneficiaries, it would be limited in its ability to establish donor advised funds. If a ministry organization desires to have a pooled income fund or donor advised funds, it would probably have to offer those itself, rather than through the supporting organization.

V. Creating a Separate Corporation.

Once the decision has been made to create Newco to achieve one or more of the goals identified above, a number of steps would be required to bring Newco into existence and to establish its tax exempt status under IRC §501(c)(3). The following describes the decisions that would need to be made and the major tasks that would need to be done to create Newco.

1. Preliminary Decisions: Control and Legal Structure of Newco.
1. Control of Newco. There are various alternatives for establishing the legal relationship between Newco and the parent corporation. One of the more common approaches would be for the parent corporation to establish itself as the sole member of Newco. As the sole member, the parent corporation would have the right to elect the board of directors, and to remove and replace any or all existing directors, if necessary. This degree of retained control should not significantly reduce the liability protection achieved by this structure, so long as other corporate formalities and elements of corporate separateness are respected. Retaining this degree of control, which is similar to a for-profit corporation establishing a wholly-owned subsidiary, helps to ensure that Newco does not drift from the purposes or activities desired by the parent corporation. Another approach that could be considered is to have the member institutions of the parent corporation be the corporate members of Newco, although this approach might be difficult to administer.
   
   The parent corporation may, for a variety of reasons, prefer to have at least some overlap in the directors of the parent corporation and Newco. However, to strengthen the liability protection benefit of a separate corporation, we would recommend that a majority of the board of Newco not simultaneously serve as officers or directors of the parent corporation. In addition, we would recommend that the officers chosen for Newco not simultaneously serve as officers of the parent corporation. Finally, to maximize as fully as possible the liability protection resulting from having a separate entity, the parent corporation should not control the day-to-day activities of Newco.
   
   
2. Trust or Corporation. As discussed in Section IV. A. above, Newco can be created either as a trust or as a corporation. Unless the parent corporation has particular requirements related to the management of Newco funds for which a trust would be more suited, it would probably be preferable to use the corporate form.
   
   
3. Private Foundation or Public Charity Status. The parent corporation must decide whether Newco can operate effectively within the constraints of a private foundation, or whether it can qualify under IRC §509(a) for nonprivate foundation status. For the reasons identified above, it would be strongly preferable for Newco to qualify as a nonprivate foundation.
   
   As discussed in Section IV.C. above, a tax exempt organization can qualify as a nonprivate foundation based either on its public source contributions or on its relationship to other nonprivate foundations (i.e., as a supporting organization under IRC §509(a)(3)). The primary advantage of the latter alternative is that the organization can qualify without the necessity of meeting numerical tests that require the organization to derive its support from a broad base of supporters. If it is anticipated that Newco will be supported by a relatively small group of donors, it may be necessary to establish it as a supporting organization under IRC §509(a)(3).
   
   
2. Primary Tasks in Forming a Separate Corporation.
   
   Certain steps would need to be taken to create Newco and to establish its activities initially. It is necessary to file articles of incorporation with the appropriate secretary of state's office to incorporate Newco, to hold an organizational meeting of the Newco board of directors, to take certain initial actions, and to apply for tax exempt status with the IRS under IRC §501(c)(3). Finally, the working relationship between the parent corporation and Newco should be clearly established so that Newco can conduct its own corporate activities.
   
   
1. Incorporate Newco under State Nonprofit Corporation Law. The state for incorporation of Newco needs to be identified, and corporate documents need to be prepared that are consistent with that state's statutory requirements. The differences between nonprofit corporation laws of different states is usually minimal, although some states, such as California, are more active from a regulatory perspective than others. Once the articles of incorporation have been filed with the secretary of state, the initial board of directors must hold an organizational meeting to elect officers, adopt the bylaws, and take certain other actions. In lieu of a meeting, the initial board can usually take these actions by unanimous written consent.
   
   
2. File Tax Exemption Application. After incorporating, and holding the organizational meeting of the directors, Newco will need to apply with the IRS for tax-exempt status. It is probably advisable for the Newco to obtain the determination on its tax-exempt status before the parent corporation transfers any assets or operations to Newco. It normally takes approximately one month to prepare and file the exemption application and anywhere from two to four months to obtain a determination from the IRS.
   
   
3. Undertake Various Administrative and Operational Tasks. Depending on the activities that actually will be carried on by Newco, various administrative tasks will need to be undertaken as part of the initial corporate formation steps. For example, if endowment assets and other reserves of the parent corporation are going to be managed by Newco, those assets will need to be transferred to Newco. If funds have been contributed to the parent corporation by donors for restricted purposes, the parent corporation may be required to obtain donor consent or court approval for the transfer of these funds to Newco. Charitable solicitation registrations in various states for the new entity may be necessary as well. Consents to the transfer of charitable gift annuities, trusteeships, and the like may also need to be obtained if it is anticipated that Newco will take over those activities as well. The specific steps that will be necessary in this regard will be easier to identify once the activities of Newco are identified more specifically.

VI. Conclusion.

Whether there are sufficient benefits to justify the formation and use of a separate corporation may depend not only on various legal and tax factors, but also on certain factual and strategic considerations. Additionally, how the new corporation is structured, and its relationship to the parent corporation, will have a significant impact not only on how the two entities function and relate in the future, but also on the degree to which the various benefits will be obtained. All of these considerations should be weighed carefully by a Christian ministry organization that is considering the formation of such a "foundation," with the assistance of legal counsel experienced with these issues.

John R. Wylie and Stuart J. Lark are attorneys in Colorado Springs, Co with Holme, Roberts and Owen, LLP.

[1] For individual donors, contributions to nonprivate foundations may be deducted up to 50% of adjusted gross income (contributions of long term appreciated capital assets may be deducted up to 30% of adjusted gross income). However, contributions to private foundations (other than "private operating foundations") may only be deducted by individuals up to 30% of their adjusted gross income (and up to 20% for long term appreciated capital asset contributions).

[2] Under certain limited conditions, large grants from "disinterested" parties can be excluded from the calculation of both public source and total income. The facts in each situation will need to be analyzed to determine whether particular contributions to Newco might satisfy any of these conditions.

[3] The Treasury Regulations specify three types of relationships that satisfy the "operated, supervised, or controlled by or in connection with" test:

1. Sole corporate member. This type of relationship, often referred to as the parent-subsidiary relationship, would give the parent corporation, as the sole voting member of supporting organization, the right to elect and remove members of the board of directors of the supporting organization, as well as to make certain other decisions accorded to corporate members under the nonprofit corporation code of the state where the supporting organization is incorporated.
   
   
2. Common supervision or control. This test would be satisfied if, for example, the organizations have common directors. This relationship is commonly referred to as the affiliate relationship.
   
   
3. Close working relationship. This test is satisfied when the officers and directors of the supporting organization work closely with the officers and directors of the supported organization and the supporting organization performs functions for the supported organization which otherwise would have to be performed by the supported organization. This type of relationship is commonly referred to for these purposes as the "in connection with" relationship.

Any of the three relationships described above may be workable for a parent corporation, although the parent-subsidiary relationship is probably the easiest of the three alternatives to implement and operate. However, the potential liability protection discussed above may be lessened somewhat if the parent corporation exercises day-to-day control over Newco under either of the first two alternatives. Although more difficult to implement and control, the "in connection with" relationship offers the greatest potential liability protection.