Creating a Delaware LLC as a Holding Company

By Andrew Millman Tuesday, January 24, 2017

creating a delaware llc as a holding companyYou 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:

  • What type of business activity can I conduct with my LLC?
  • How many different businesses can I operate under one LLC?
  • Should I set up DBAs? 
  • Should I create a separate LLC for each project?
  • Will a series LLC work for me, or should I stick to multiple, traditional LLCs? 

Operating Multiple Businesses with One LLC

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. 

Separate LLCs for Separate Businesses

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

THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.

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There are 12 comments left for Creating a Delaware LLC as a Holding Company

Florent J said: Tuesday, June 6, 2017

Hello, I am looking at starting a new business in Sweden. However, opening a LLC-equivalent in sweden costs about 6,000USD, while opening an office in Sweden as a branch of a foreign company makes it free. I was therefore thinking about creating a holding, LLC in Delaware, and opening an affiliated branch in Sweden. would this be possible? Thank you!

HBS Staff replied: Tuesday, June 6, 2017

Delaware makes the process to create a new holding company very quick, easy and inexpensive.  The process will take only 3 business days and can be completed for as little as $179.   Delaware does not require that the member(s) have to visit Delaware, live here in Delaware or be U.S. citizens; anyone in the world can file a Delaware entity.  The LLC has been used with great success as a holding company for any type of asset. 

You can call, email or Live Chat with us via our website.

 

martin said: Tuesday, April 18, 2017

if I open a holding company in Deleware or Nevada and own businesses in California, would I be taxed in California for both businesses?

HBS Staff replied: Tuesday, April 18, 2017

Traditionally, clients should consult with a tax professional for any and all specific tax concerns, just to be on the safe side, as there are many variables involved.

Alessio 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!

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