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You have an amazing idea for a new business. You’re ready to incorporate in order to protect yourself and your personal assets, and you’ve decided it’s time to take the next step and form a Delaware LLC for your new entrepreneurial endeavor.
Then the confusion swirls:
Delaware LLCs can conduct any lawful business activity anywhere in the world. Some people explore the low-cost series LLC when they want to operate several different businesses, which is very enticing since there is only one annual Franchise Tax payment to the state of Delaware and one annual Registered Agent Fee.
However, the structure of this business entity is relatively new and unproven, so there are often many hurdles that arise when dealing with a series LLC. It is generally considered safer and smarter for people to keep their business ventures completely separate from one another by forming an LLC for each aspect of a business; in essence, what you are doing is creating one Delaware LLC as a holding company, and other, individual LLCs within it yet separate from it.
Many people consider setting up DBAs for numerous, different business operating under the umbrella of one LLC. A DBA (Doing Business As) or fictitious name registration is simply assigning the LLC another name, or multiple other names, that may better fit the spectrum of services or products offered.
However, DBAs do not provide any type of legal separation between the different aspects of the business. If anything should happen to any one segment of the LLC, the LLC as a whole, as well as every other aspect of the business, could potentially be affected and held liable.
As it stands today, the battle tested, proven practice of creating individual LLCs that are formed for every variant of a business is traditionally still the most highly recommended strategy by tax professionals, attorneys and business consultants all over the world.
This means that for every sector of the business, for each product line, for every service provided, for each piece of real estate held, clients will often consider creating separate, traditional LLCs. Doing so ensures that the assets, debts, and liabilities of each LLC are completely disconnected and shielded from one another in the event of any possible litigation.
When establishing multiple LLCs, it can be extremely helpful to develop a blueprint hierarchy that will coincide with the relationship of the respective LLCs. For example, people typically set up numerous LLCs for real estate development.
This framework often consists of one parent LLC at the top of the hierarchy—let’s call it ABC Holding Company, LLC. People then typically create multiple sibling LLCs, one for each piece of actual real estate—let’s call them ABC Real Estate 1, LLC; ABC Real Estate 2, LLC; and ABC Real Estate 3, LLC.
Each LLC may own, manage and be responsible for a single piece of property; thus, while all the LLCs share the same holding company—ABC Holding Company, LLC—and may possess similar structures, ownership interests, assets and liabilities, they are insulated and shielded from one another in order to protect the properties and resources of each individual LLC.
This is also considered a smart, strategic way to further protect your personal assets from your LLCs.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There are 15 comments left for Creating a Delaware LLC as a Holding CompanyAlessio E said: Friday, February 17, 2017
I have a LLC filed in De. the LLC operates abroad, but filed at IRS and having an EIN. I'd file a Inc in De totally owned by the exiting LLc in De. Who will be the responsably party of the new co the holding LLC, the member of the holing LLc or the Director manager of the operating Inc?HBS Staff replied: Monday, February 20, 2017
These questions can be more easily answered if you call us during working hours, Monday-Friday, 9-5 EST. 1-800-645-7400.Roger Stokes said: Saturday, February 11, 2017
What is the process for establishing a Holding Company? My company is registered in Delaware - NXIS Enterprises, LLC.HBS Staff replied: Monday, February 13, 2017
Many clients form Delaware LLCs for the sole purpose of holding assets; boats, cars, planes, real estate, etc. Feel free to call us during working hours (M-F, 9-5) for more information on forming a holding company. 1-800-345-2677.Minus said: Sunday, January 29, 2017
Thank you, I find these blog posts to be very informative!Terence Blackburn said: Wednesday, January 25, 2017
This is similar to our model that uses trusts to isolate assets. Can the LLC owner/director be sued directly?HBS Staff replied: Friday, January 27, 2017
That question can be better answered by an attorney. Thanks for reading our blog and reaching out. Sorry we can't be of more assistance but that is outside the realm of our experience.Andre Woodley said: Wednesday, January 25, 2017
Thanks for the info. I was going the series route, but I think I would prefer to pay the few extra dollars and set them up this way.HBS Staff replied: Friday, January 27, 2017
You are welcome! Glad our blog was of assistance to you.