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?
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.
Answered 7 years ago
In my experience working in corporate structuring, venture financing, and B2B business models — especially cases where software and manufacturing entities grow together but later need strategic separation — this is a common challenge.
When two entities are symbiotic in the early phase but must appear independent (and even serve competing markets) later on, the key is to balance shared control and resources with clean legal separation and clear market positioning.
What typically works best in this scenario
1. Create a holding (“parent”) company
This parent company owns both the manufacturing business and the software entity as two fully separate subsidiaries.
This structure solves several issues at once:
• You keep centralized control and strategic alignment.
• You can legally and operationally separate the entities so each can serve its own market.
• Shared resources (IP, staff, capital, infrastructure) can be managed at the parent level.
• It provides flexibility for future fundraising: investors can invest in one subsidiary without influencing the other.
This is the most common and cleanest structure for exactly the scenario you’re describing.
2. Establish strict governance and Chinese walls
Because the software company might eventually serve competitors of the manufacturer, it needs to be perceived — and actually operate — independently.
That means:
• Independent branding
• Independent sales and commercial terms
• Confidentiality and information-firewall policies
• Separate customer data environments
• Separate financial reporting
Even if both entities are owned by the parent, the operational separation must be real, not cosmetic.
3. Shared services only where neutral
Anything that risks conflicts of interest should not be shared.
But neutral functions often can be centralized:
• HR
• Finance
• Legal
• Admin
• Non-competitive R&D
• Infrastructure (cloud, office space, etc.)
This keeps costs efficient without compromising independence.
4. Plan early for future investment or exit
Often, the software entity will eventually seek external investment at a higher valuation multiple than the manufacturing business.
A clean “sibling company under a parent” structure:
• Makes due diligence much easier
• Allows you to spin out or raise capital for the software subsidiary without disturbing the manufacturing business
• Protects IP ownership and transferability
• Gives you optionality: merge, sell, expand, or license independently
Summary (the short version)
The best structure is:
➡️ HoldCo
↳ Manufacturing OpCo
↳ Software OpCo
With
✔ clear governance
✔ operational independence
✔ shared services only where non-sensitive
✔ clean IP ownership and data separation
This gives you both the efficiency of unity and the market legitimacy of separation.
If you’d like, I can walk you through several structure diagrams and help you evaluate which tax and governance model fits best for your situation.
Answered a month ago
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