- How you can protect your businesses from the liabilities of your other businesses
- Does a D.B.A. offer you any legal protection?
- Are there alternatives to setting up a separate LLC for each business or property?
If you have multiple LLCs, it’s only natural to wonder if you should set up an LLC holding company. In order to determine the right move for you, it’s first important to understand why people set up a holding company. Here’s what you need to know.
What Is a Holding Company?
In the past, the organizational structure of parent/subsidiary companies was usually a parent “holding company” which held the stock of the subsidiary companies. The holding company and its subsidiaries were all corporations or traditional LLCs.
While it is advisable to set up a new LLC for each different business interest, if the cost of managing a dozen or more companies is beyond your economic ability, the Series LLC may be an alternative. Some business owners set up a DBA (“Doing Business As” or “fictitious name”) for each separate company without the knowledge that this exposes all of their businesses to each other’s liabilities. Setting up a DBA will not safeguard your personal assets from creditors of the business. You should form an LLC to limit your liability.
Holding Company vs. Series LLC
The Series LLC was introduced in 1996 in the State of Delaware. A Series LLC offers the benefits of a traditional LLC with one significant difference. A Series LLC can establish under that umbrella an unlimited number of self-contained “cells”. Delaware law gives each sheltered cell some of the protections of separately incorporated subsidiaries.
For example, if you own multiple real estate investment properties, each property can be segregated into its own protected cell. A claim arising out of any one property should not allow that creditor or claimant to reach the assets in any other protected series cell. If all properties were in a single traditional LLC, all would be at risk for a claim arising out of any one property. With a Series LLC, all of your eggs are still in one basket, but there is some separation between them, like in an egg carton to keep the eggs from breaking.
A Series LLC only pays one franchise tax fee, no matter how many protected cells it creates. There is no cost to add protected cells or limit on the number of protected cells under the Series LLC. Because the LLC operating agreement is allowed maximum freedom of contract when drafting, the limit is your imagination.
Here’s a link to a video and more information about how you can use a Delaware Series LLC: https://www.incnow.com/delaware-series-llc/.