- Hi everyone, hi, hi, hello.
I'm attorney Aiden Kramer with the Law Office
of Aiden H Kramer in Colorado.
And you're watching all if any business.
And look, it's my buddy Rocky.
You guys remember my old buddy Rocky, right?
You can see his big white butt right there.
Well, what Rocky and I are gonna talk about today,
is using Umbrella LLCs or holding companies
and subsidiary companies and why one would do that,
and what benefit and advantages they provide.
And so to help explain that,
I'm gonna do something really special.
You know it, you love it, you missed it.
I'm gonna bring in some nice graphics.
Here we have a basic illustration of
what a kind of simple Umbrella
or holding company structure might look like.
So here we have obviously business owner, business owner, BO
stands for business owner.
Well, I mean, what else would BO stand for?
And BO owns one LLC, LLC1.
He is the only owner, the single member in this LLC
and this LLC one would be typically referred to as
the holding company and then LLC1 owns LLC2 and LLC3.
Those are normally referred to as the subsidiary companies.
LLC1 might also be called the parent company.
And I will say this as LLCs,
but this is also very common with corporations
or having the corporation be the holding company,
and the LLCs subsidiaries.
You can do it with really any sort of business entity.
So that business owner owns LLC1,
but LLC1 owns LLCs two and three.
LLC1 is the only owner, the only member in these other two.
So these other two LLCs are considered single member LLCs.
Now there are two primary advantages to doing this.
The first is for liability protection.
So if you're operating a business
or if you're operating a few businesses,
or if your one business has kind of different
types of operations that it does,
then this would be something that you might want to do,
is separate each business or each business function
or operation into its own LLC or a corporation.
The reason you would want to do that is because then,
the liabilities of one company or one LLC
won't hopefully affect the assets of the other LLC.
So let's just say for simplicity's sake
that you're operating three different businesses,
but under one LLC.
If somebody sues you because of
one of the business functions that you're doing,
then obviously the assets of the other two businesses
are gonna be liable for that lawsuit or those liabilities,
because they're all under one LLC,
they're really under one business entity.
So by separating them out,
you're separating the assets and separating the liabilities
to hopefully protect each asset and insulate each business
from the liabilities of each other one.
So if there's a lawsuit over LLC2,
the assets of LLC3 and LLC1 and BO,
will hopefully be protected from those liabilities.
And then the other benefit of doing this is a tax benefit.
That's why I wrote taxes there.
If you can't read that, that says taxes.
Single member LLCs are considered disregarded entities.
That means the income to the LLC is basically treated
as if it's income to the business owner.
It's a pass through entity,
the profit passes through to the business owner.
So if BO here owned three LLCs,
but they were all three separate LLCs,
he would basically have to file a tax return
for each separate business
and that could get kind of cumbersome and taxing, huh?
It could be very taxing to have to do that, that's funny.
I just came up with that that's funny.
But since LLC2 and LLC3 are only owned by LLC1,
they are single member LLC.
So the profit from a tax standpoint,
passes through to LLC1 and then that passes through
to the business owner.
So the business owner now only has to file taxes
for one business because it's all passing through LLC1.
So that's another benefit of structuring something this way
is for the tax simplicity.
So structuring a business or multiple businesses
or multiple business operations in this manner
can be a good idea and it can help protect,
the assets of one of the business functions one of the LLCs
from the liabilities of one of the other ones.
It's definitely not perfect just like any other LLC
it's not absolute liability protection,
you are still subject to piercing the corporate veil
in these situations and to reverse piercing
the corporate veil so our LLC1
could be still liable for LLC2 or three,
if somebody decided to pierce the corporate veil,
then the assets of LLC1 could be subject to that.
And it could potentially go the other way
where LLC1 if they were subject to a lawsuit,
then LLC2 and three could be at risk as well
because those are the assets of LLC1.
So it's definitely not perfect,
but it can really help you liability wise
and legally and tax wise.
So I hope that helped explain it.
I know it's kind of a complicated structure
and if you're thinking about doing something like this,
I really recommend working with an attorney,
because it's really easy to screw these up
and just have a whole big mess on your hands.
So if you guys have any other questions about that,
feel free to comment them.
If you're in Colorado and you wanna speak with me personally
about your business or starting an LLC or subsidiary LLCs,
and whether that's the right thing for you,
feel free to contact me.
My phone number and email are below.
Otherwise, thank you all so much for watching.
I'm Aiden Kramer, and this is Rocky,
and we'll see you next time.