If you love running businesses, it’s possible that you may be administering or directing more than one company. As your number of businesses expand, the administration involved in supporting them and meeting compliance and tax needs also grows.
Rather than running each business as a separate entity, you can consider a series LLC or holding company structure to reduce your overhead.
We’ll dig into holding companies and series LLCs to help you decide which one is right for you.
When to Use a Series LLC or Holding Company
If you’re just running a single business, you don’t need a series LLC or holding company—instead, just run them as a standard LLC, a professional LLC or a corporation. It’s only if you run multiple businesses that you need to consider a holding company or series LLC.
What Is a Series LLC?
A series LLC provides the same benefits as a regular LLC — personal liability protection, simplified administration and quick and easy registration. Series LLCs act as “umbrella” companies that provide these features to the separate ventures or business lines that you run under the series LLC structure.
Series LLCs are designed to be easy to administer and are flexible enough to accommodate several businesses. One of the restrictions on series LLCs is that they’re only available in a few sates, specifically: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas and Utah.
How a Series LLC Can Help You
Series LLCs help you run “mini LLCs” under the same, overarching business. These mini LLCs each have their own finances, managers, members and separation of liability and debt. This means that risks and liabilities that impact one of your mini LLCs shouldn’t impact other entities in your series LLC structure.
There’s also much less paperwork and lower costs associated with setting up and running a series LLC, which is important as you’re probably already overworked! There are some downsides and risks associated with a series LLC, including:
If you operate across multiple states, the new states may not recognize a series LLC, so it’s important to speak to a business attorney to understand what that means for you.
You will need to keep separate financial records and bank accounts for each mini LLC.
Series LLC laws do vary from state to state, so it’s important to understand the legal implications.
Now that we’ve discussed series LLCs, let’s look at holding companies.
What Is a Holding Company?
If you can’t start a series LLC, or you don’t want to, a holding company is another good option for multiple business ventures. First you create individual LLCs or corporations and then create an overall holding company that sits over them. A holding company effectively holds ownership and stock rights over your other businesses — known as subsidiaries or operating companies.
The holding company itself does not sell products or services or perform other operational roles. Instead, it makes management, financial, legal and tax decisions on behalf of its subsidiaries.
A holding company can own shares in a corporation, securities, intellectual property, real estate, subsidiary companies or anything else that has value.
There are some limitations on holding companies. If an LLC owns a corporation, the LLC must file as a C Corporation. An LLC cannot legally own an S Corporation. Additionally, sole proprietorships — where there is no other legal business entity in place — cannot own other businesses. Each business must also have separate accounting records and bank accounts.
How a Holding Company Can Help You
The main benefit of a holding company is asset and liability protection. Provided you have created your operating business(es) and holding company correctly, the assets will be considered completely separate.
Is a Series LLC or a Holding Company the Best Choice?
If you’re not in a state that recognizes the series LLC, then the decision has already been made for you — you’ll need a holding company. If you are in a series LLC state, it’s likely to be easier to form and run a series LLC than to operate a separate holding company. Speak to a business attorney or accountant to work out what the costs and implications of each are likely to be.
When it comes to managing multiple businesses, both the series LLC and the holding company are great options. Whatever you choose, Incfile is here to help you create your new business and guide you on your path.
Paul is a freelance writer, small business owner, and British expat exploring the U.S. When he’s not politely apologizing, he enjoys hats, hockey, Earl Grey Tea, mountains, and dogs.