Series LLC vs Holding Company
On the surface, it might seem as though holding companies and series companies are nearly the same. After all, both types of businesses have a parent company along with “children” beneath their umbrellas. Furthermore, both companies provide similar asset protection along with tax benefits. However, there are some important differences of note between these two types of companies. In particular, series companies tend to be comparably cost effective.
What is a Series LLC?
Series LLCs are limited liability companies in which each series serves as a distinct LLC. The series are separated as LLCs with the overarching goal of providing protection for legal liability. This way, if a lawsuit is filed against one series, it will not impact the others. Real estate professionals sometimes use series LLCs so property ownership is attributable to distinct series. Series LLCs are formed similar to regular LLCs but for the fact that the articles of formation must explicitly state there is authorization to create a series. The original LLC is often referred to as the base, master, parent or umbrella LLC. The series it generates can be referred to with different monikers. In the end, series LLCs boil down to important legal tools that ultimately protect assets and ameliorate the challenge of business management.
What is a Holding Company?
Holding companies can also be LLCs. It is best to think of holding companies as entities that own other businesses and assets. Such assets can range from intellectual property to real estate and equipment. Holding entities do not partake in business affairs of their own. Subsidiaries partake in such operations, assuming all the risk so the overarching LLC cannot be pursued by creditors.
It is interesting to note trusts can own LLC holding companies. Such an arrangement provides extra asset protection. If necessary, the ownership of an LLC holding company through a trust can serve as the foundation for an estate plan. In the end, holding companies make it that much easier to manage distinct businesses interests. In some cases, holding companies even serve as personal banks. However, most people will not refer to such entities as holding companies. Property, investment and asset are some of the terms commonly used when referring to holding companies.
Series LLC vs. Holding Company
Frealizations, interest on cash, corporate net costs, foreign exchange transactions for foreign cash, and taxes paid.
Holding companies do not actively partake in everyday business affairs. Rather, holding companies are meant to hold assets such as homes, automobiles and property. Holding companies hold the LLC group that store assets. Each time the business owner would like to put an asset under the holding company's umbrella, a distinct LLC must be formed. Series LLCs are a comparably efficient as you simply have to establish a master LLC rather than multiple LLCs. A master LLC is empowered to handle its own business affairs and bring in revenue. The same cannot be said of a holding company. In fact, a master LLC can even assist in directing the growth of series beneath its umbrella within the nuanced language of the overarching operating agreement.
Shareholders receive dividends from interest and dividend income that the holding company earns. Holding companies typically aim to give shareholders annual dividend flows of a consistent nature to protect against inflation.
The primary advantage of a series LLC is the fact that it safeguard assets of every series against the liabilities of other series. In fact, a series LLC also serves the purpose of protecting assets against liability stemming from the master LLC. However, those who manage series LLCs are tasked with ensuring each is separate from others beneath the master LLC. Though it is possible for series to share duties and costs, financial records and bank accounts cannot be shared unless the owner is willing to expose him or herself to additional liability.
Series within the master LLC can have distinct security interests, members and reasons for existence. Series can acquire, own or sell an array of assets ranging from intellectual property to more tangible items. Assets within a series can be held in the name of that series or in the name of the overarching master LLC. We would be remiss not to point out the fact that those who create master LLCs have near total freedom of contract in terms of generating operating agreements. It is also worth noting series LLCs have comparably simple structures, especially when contrasted with corporations that have multiple subsidiaries. As a result, series LLCs are that much easier to operate and manage.
In terms of drawbacks, the structure of a series LLC is somewhat shaky in the context of the law. Series LLCs are fairly recent creations so there is limited legal precedent for conflicts concerning these entities. Series LLC liability protection has not been tested in-depth in the United States' legal system. Furthermore, states that recognize the series LLC structure have their own distinct regulations for these nuanced instruments.