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?
You can do it the way you describe, with the umbrella entity filing dbas as needed. The problem with your approach, however, is that each line of business will be subject to the liabilities of the other businesses. From an accounting standpoint, you can keep separate books for each business, but they will be merged in your tax returns.
If you are in the United States, one of the best ways to do this is to use an Illinois Series LLC. Illinois is the latest of the 7 states which have enacted the series LLC laws. It also has the most favorable laws of those seven. Much like Delaware corporations, you need not be in Illinois to use this law. With the series LLC, you create one master LLC and then can create other LLC's under it in a series. If formed correctly, each LLC in the series is considered separate for liability purposes and can have different ownership. At the same time, funds can flow to the master LLC and you have the tax advantage of the LLC.
This is a hybrid inquiry in tax and legal areas. Unless you expect to encounter a large potential liability risk in one of the business lines, or you want to be able to kill an unsuccessful unit without having the ongoing units being responsible for its debts, it is ordinarily cheapest to have a single legal entity with multiple d/b/a activities. Every entity has attendant costs in legal and accounting fees.
If in the U.S. you can form series LLCs out of Delaware with foreign qualifications in the states it's operating. Or you can create entities with ownership of the lower entities by your 'umbrella'. These are VERY complex to keep up if you are doing this by yourself because of the operation of tax laws and state laws and foreign qualification fees and with each state you are operating you have to keep up the requirements in each. Before you decide to create a bunch of entities, it is best to come up with what you are attempting to do with your products and why and then consult with an attorney about the best way to do that, keep the most of your money with the least hassle for entity compliance. Just consider how many different tax returns you have to file for each entity. It gets VERY expensive.
Sherri, that is not a question to mess with out here online; or you could create tax and other implications, you never intended.
I would take this question up with a tax accountant and/or lawyer...even if it through an initial consultation with them to learn how they can help you.
Sherri: The main purpose of having multiple entities is liability protection. If you have formed and LLC or corporation, you know that if you follow your state laws your personal assets will be protected from lawsuits and most other creditors. Forming multiple entities cuts off the assets from each business from exposure from a lawsuit in another business. If, for example, "Marketing For You" were sued, the assets from "Life Coach XYZ" would be protected. You can put all of the businesses in one entity with multiple DBAs, but I usually advise my clients to avoid soing so. If your businesses are successful, you certainly will be sued at some point. For just a little more bookeeping inconvenience (no major tax difference), you could significantly minimize your exposure with multiple entities. Feel free to contact me to discuss this further.
We operate a consolidated company in Canada that acts as our umbrella company and have a couple of businesses under "operating as".
I'm not sure exactly how it works in the US but I think it's similar.
Sherri: What is the underlying reason that you want a umbrella company or phrased another way, a "Holding Company"? Are you trying to do asset protection? If so, there are other things to consider that are very important. Is it for some sort of tax purposes?
From your description it sounds like you want one company that markets itself under different names. Again, the question would be why?
Per the IRS:
"A personal holding company: Is defined in Internal Revenue Code section 542 (http://www.irs.gov/publications/p542/ar01.html).
A corporation will be considered a personal holding company if both the Income Test and the Stock Ownership Test are met.
- The Income Test states that at least 60% of the corporation's adjusted ordinary gross income for the tax year is from dividends, interest, rent, royalties, and annuities.
- The Stock Ownership Test states that at any time during the last half of the tax year, more than 50% in value of the corporation's outstanding stock is owned, directly or indirectly, by 5 or fewer individuals."
For tax years beginning in 2013, the tax on undistributed personal holding
company income has increased to 20%.
It is possible and quite common, for a business to act as a holding company or operating company for other, related entities. I think it's imperative to know what each entity does and what you want the parent or holding company to do for it and the related risks associated with each.
if you were in Australia i could help you with question as i have that set up my self... not sure how the corporate laws work in the US so my suggestion is to seek some good legal advise to get maximum legal protection....
The way my companies are set up gives me complete protection personally and also protects my assets.
This is what i have;
My "umbrella" company is incorporated and trustee for "xyz" trust a trading trust. as such my "umbrella" company is not a trading company and can not be sued.
Under my "umbrella" company i have 4 other incorporated companies each as trustee for a trust trading as a sole trader and my "xyz" trust is the asset holder for those subsidiaries.
The "umbrella" company only provides an administration service to the 4 subsidiaries and therefore gets paid for that services.
It can get collocated so as i said get your self a good lawyer to set it up for you and make sure you have trusts set up in between your umbrella company and the trading companies.
Hope this helps