In business, we often have several different types of entities that are all very close to one another; or they seem like they are at first glance. Holding companies and series LLCs appear to function much the same way and, at some level, they do. However, when you get down to the grit of it, these two couldn't be more different in what they actually do for the companies under them. In this article, we'll be taking a quick look at what holding companies, series LLCs, and other likewise entities are, how they compare, and which one you may want to protect your assets. Let's get started.
What is a Series LLC?
Pardon us if we speak somewhat simply, but we're trying to include everyone in this conversation. A series LLC is an LLC specifically created to maintain other LLCs. For instance, Bob starts an LLC called Bob's Buildings. Good for him.
Beneath Bob's Buildings are several different LLCs. Bob's Buildings owns Sarah's Sheds, Gary's Garages, and Peter's Playhouses. Each of these sub-LLCs have their own separate founding members, applicant members, funds, and so forth. Bob's Buildings is the "big brother" that assumes responsibility for each of them in turn, making certain that their information is up to date and that they are run appropriately. Bob's Buildings may also work as a business while it is a cover business for the other three, uniting them together as a group of four businesses.
But, you say, isn't that what a holding company is? Isn't that what it does? Not quite.
What is a Holding Company?
A holding company largely functions on the premise that its entity is only there to be a holding company. It does not conduct business on the side, it is not a business entity in and of itself. It is just there to assist. For instance, let's take a look at Yum!, but pretend it's an LLC rather than a corporation.
This company only exists to hold the others together as a single unit. Yes, it does buy and sell other companies but those companies continue to remain separate entities, too. For instance, you may see Taco Bell and KFC settled together, but their accounting isn't in the same book. It isn't the same business model, they're just two restaurants sharing the same space for the time being.
Now, the real Yum! is far, far beyond this. But we're trying to compare this to relatable content.
Why You May Decide on a Holding Company
Holding companies are typically a little less cozy with each other. They're more "business-oriented" styles that tend to happen due to a buyout or someone deciding upon a partnership-like situation. These are by and large not the only samples of holding companies, because they're used all the time and for vastly different purposes. Holding companies, in truth, just seem to be the "grown-up" version of SLLCs when it comes down to it.
This doesn't mean that your SLLC is a junior copy-cat of a holding company, it simply means that it works better for you. Situations change, needs change, and many organizations find themselves switching back and forth as brands leave or members separate.
Essentially, the biggest difference is whether or not the LLC (or corporation in some cases) intends to do business as an entity, or if it only exists as a shelter for multiple other brands beneath it.
Why You May Decide on a Series LLC
Going back to Bob's Buildings, his friends Sarah, Peter, and Gary all want to work together to push their companies to a great goal. Wonderful. But working together isn't enough; they want to remain separate entities just in case the situation doesn't work out. And sometimes, it doesn't. This is a perfect situation for an SLLC (series LLC).
The best advice we can give you regarding holding companies and SLLCs is to look deep into your company's impact and where you want to be in 10 years. Every situation is different and they are constantly evolving. Deciding on which serves you best can be one of the most complicated and important choices that you make for quite some time. Do your research, take your time, and try not to get in over your head.
We also feel a small disclaimer is needed at the end of this: holding companies and SLLCs rarely change from state to state, but it is important to double-check your state's laws just to be certain that they don't.