A holding company is a business entity that owns or holds controlling interest in other businesses, known as subsidiaries. The main purpose of a holding company is to streamline management of the separate subsidiary companies, as a holding company typically does not produce goods or services of its own.
It’s the subsidiaries of the holding company that carry out operations and assume any of the associated risk. Also, keep in mind that the subsidiaries of a holding company can extend beyond other companies. A holding company can own assets like real estate, securities, intellectual property, equipment, and more.
A series LLC is a form of LLC that’s structured to hold multiple interests or business lines underneath a single company. In this way, the series LLC serves as an umbrella company over multiple subsidiary companies. Each series is separated as its own LLC, which provides liability protection. If one series were to experience any legal complications it would not impact the assets of any other series.
Forming a series LLC is very similar to that of forming a regular LLC. However, in the case of a series LLC, the articles of formation must include an authorization to form a series. Note, however, that the series LLC is not an available option in every state. The states where it is currently available include: Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, Virginia, and Wyoming.
At first glance, it may appear that a holding company and a series LLC are practically the same entity type. While the two do share similarities, most notably a head company at the top of their structuring, there are some important distinctions between them, as well.
For starters, holding companies do not actively participate in their own business operations. Instead, their purpose is to own controlling interest in other companies, which are referred to as subsidiaries. When a holding company wants to add a subsidiary it must form a distinct LLC for that particular asset.
When it comes to a series LLC, however, note that it’s typically easier to establish when compared to that of a holding company. Rather than requiring the formation of multiple LLCs, there is simply the establishment of a master LLC. Unlike with a holding company, the master LLC can conduct its own business operations, as well as direct the growth of a series beneath it.
The primary advantage of a series LLC is the manner in which it protects the assets of each series while also protecting each series from the others. In addition, this structure also offers asset protection against potential liabilities related to the master LLC.
With a series LLC, there remains the possibility for a series to share certain duties or costs with another series. However, there can be no sharing when it comes to bank accounts and maintaining financial records. Each series must keep its own bank account and records. Failure to do so could open the series LLC owner up to liabilities.
Another unique characteristic that series LLCs enjoy are that the assets within a given series can be held in the name of that specific series or in the name of the master LLC. It’s also worth noting that series LLCs tend to have simpler structuring when compared to a holding company with multiple subsidiary companies, making them slightly easier to manage.
When it comes to deciding between a series LLC or holding company, it’s best to consult an attorney or accountant with experience in this area. While both entity types are great options for managing multiple companies or other assets, an expert can detail the specific cost implications of setting up either approach for your business.
The series LLC structure isn’t the right choice for every business owner. For example, if you’re the owner of a single business, there isn’t any need for a series LLC or a holding company for that matter. A standard LLC or corporation will achieve all of the asset and liability protections that you may need.
Business owners should really only consider a series LLC if they own multiple businesses. When the number of businesses you own begins to expand, so too does the administrative work, compliance requirements, tax reporting, and more. Instead of running each of your businesses as completely separate entities, the series LLC structure allows you to bring them all under the same overarching company, which in turn allows you to reduce overhead and streamline management.
Even though all of the businesses are brought under the same LLC structure, each business retains the ability to implement their own management style and address matters specific to their industry and location. This autonomy extends to risk and liability, as well. In this way, if one company were to be sued, the other companies in the series LLC structure would not be at risk.