How do I legally create an "umbrella" company that has several different types of businesses under it? Do I incorporate, use dba's, etc.?
Instead of creating several LLC's is it possible to have one umbrella company such as "Company ABC" that has "House of Lights", "Marketing For You", and "Life Coach XYZ" under it? This way only one business is technically formed with different offshoots?
Yes, the CON of having DBA’s under one umbrella is if one gets sued the whole umbrella is sued.
A PRO is if all the dba’s are doing well along with the parent LLC then it makes that one LLC very strong and worth A LOT! So that will help you secure very large business loans that you couldn't secure if they were all individual LLCs. Also makes it worth a lot if you ever want to sell.
Another pro is less bookkeeping of course which shouldn't be a big deal if running successful businesses, however, it all boils down to the type of businesses. Are they businesses where you are likely to get sued? If so then maybe you can separate them. If not then why separate them. Also, money is an issue for some people as they can't afford to pay all the fees for setting up individual LLC’s. It's a lot of businesses that you can start with little to no investment so don't assume just because a person is starting a business that they have major fund. Could be mowing lawns, babysitting, pet sitting, dance classes, etc.
Also, a parent company if successful can help a dba off branding and reputation alone. Michael Jordan shoes and Lebron James shoes are popping because of their parent company Nike brand. Wouldn't have been the same outcome without Nike brand backing them. That's just one example. So it all depends.
Weigh your options do what fits best for your unique vision.
If I were you, I would turn to the guys from https://linkagemind.com/practices/corporate-m-a/ company for assistance. I'm 100% sure they will provide you with a meaningful advice. Good luck!
I just want you to understand the issue form a liability perspective. So if your goal is to limit liability between the ventures then I hope this helps. You will also have to consider the tax implications and expenses associated with filing multiple individual returns, or one large return for multiple legal entities under uno holding company.
First, a holding company is not a holding company if there are no legal entities under it. DBAs are not legal entities. Its like having multiple aliases for one individual. An individual is still the same individual no matter what aliases that person may have. The reason being is that all the aliases are under the same social security number, or under the same EIN for a business.
Many have a misconception and believe that using DBAs under one legal entity give them a Holding Company status when in fact it does not. DBAs are not considered separate legal entities because they fall under the same EIN as the actual legal entity. The legal entity has full exposure of any and all DBAs. Meaning that if one DBA is sued then all DBAs and the legal entity are legally liable. So, if one of the ventures goes bad the legal entity is not able to terminate it or file bankruptcy on the DBA.
The legal entity must have other legal entities as subsidiaries or divisions in order to qualify as a Holding Company and benefit from the individuality status under the law. The point is that those are also separate legal entities (DBAs do not qualify). If one of those ventures goes sour then the Holding Company can terminate, file bankruptcy, or take any other action necessary without the fear of being liable for that legal entity's financial or legal responsibility (provided that the corporate veil was not pierced).
One thing to keep in mind is that, technically speaking, the companies in your example don't have to share a parent or be in any way connected with each other in order to grant each other licenses and rights (for naming, etc.).
In the USA (as per Scott Zucker's post) there may be a really good reason why you shouldn't create an umbrella.
NOW - if you want to create a holding corp outside of the USA, and switch those LLC's to S-Corps... that may be a more viable solution. Still, you'd have to have a decent motive to do that.
Entity structure should be determined by your legal and CPA advisors. Depending on the individual businesses / dba's under the main umbrella, they could simply be marketed and branded as products / services, under the umbrella. The bottom line is that it is a question that would require advisors in tax, legal entity, and startup spaces. As a previous owner of a PR firm, we always tested the waters first under the existing business entity, made sure they would produce revenue and positive EBITDA, before spinning them out. Also, certain corp structures don't allow you to invest in other entities, so testing the water first, proving concept, etc., then personally forming a completely different entity would probably be the wisest steps to take. Dave Cochran, Cochran Edwards Capital Partners, Seattle
You'll need to think about what your goals are in creating this organization. In our case, here in Illinois, we were looking to achieve maximum utilization of hard and soft resources while maintaining strong corporate veils for each of the "sub entities". Our "holding company" was an LLC while each of the seven corporations until its "umbrella" were either C corps or S corps. The election to the type of corporation was done only after much discussion with our tax accountants. Through this large entity we were able to negotiate very favorable insurance coverages yet shield each of the member companies in the group from any risks inherent to any particular operation.
Basically, figure out what you're looking for then sit down with your legal and financial resources to determine the best scenario(s) for your jurisdiction.
And above all, KEEP VERY GOOD RECORDS ON EACH OF THE CORPORATIONS, especially all aspects of your intercompany resource charges or the entire group can be treated as an Integrated Business Enterprise.
Sherri, there is no reason to do so. Each entity you formally organize is it's own being - it can be sued, it can sue, it can engage in contractual negotiations, etc. A primary reason to organize as a corporation, LLC, partnership, etc. is to create a roadmap, if you will, as to how the business is going to be managed and operated. Another significant benefit of organization is to limit damages in the case of a lawsuit. Should you organize a parent corporation and then organize subsidiaries and a verdict be rendered against any of the subsidiaries in a lawsuit, the parent company will also be pulled in and any assets (the other subsidiaries) of the parent company can be taken to settle the obligation. If you have different businesses, organize them independently. I won't even go into the tax nightmare you would create.
I have more to think about (on the side of Sherri) before you can determine how you are setting up a LLC, Corp, etc.
1. Are you considering having other shareholders?
2. Is the purpose to maintain one corporation for taxes and save this way?
-It may be hurting vs helping you.
3. If you have a dba, someone may inc. your company name unowned.
4. Awarding a shareholder in lieu of finances can reduce your overall tax payment on a personal level.
JUST CURIOUS WHAT IS THE PURPOSE OF DOING THE DBA
I have no idea why you want to complicate your life, running a company is hard work and now you want multiples, Just start a business get business make it profitable and when the tax man comes make a plan. Any company can hold brands or you can run a business as a sole trader - having funny structures makes people ring alarm bells especially of you are not a large company