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Dear Brian:
It is possible to use multiple limited liability companies to set up a
parent-subsidiary business structure. One LLC may be formed to serve as the
parent company, and one or more separate LLCs may be formed with the parent
LLC as the member (owner) of each LLC to create the parent-subsidiary
structure. Because LLCs are pass-through entities for tax purposes, the net
taxable income of a subsidiary LLC would flow through to the parent LLC and
would be taxed accordingly. If the parent LLC is owned by an individual, all
of the net taxable income from the LLCs would ultimately flow through to the
individual and would be taxed at the individual's income tax rate.
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LLCs can generally be used for either business purposes or investment
purposes. For example, a property management company can be set up as an LLC
if the business owner so chooses. Also, an investor can form an LLC to hold
real estate property for asset protection purposes.
However, instead of forming one LLC to hold multiple properties, many
real estate investors seeking to maximize asset protection benefits form
separate LLCs for each property that they hold as a form of risk management.
By doing so, they create a buffer of sorts between each property--if one LLC
were to be faced with a debt, claim or judgment, only the assets held by
that LLC would be at risk; properties held by other LLCs would remain
untouched.
It should be noted, however, that if one parent LLC owns all of the
property-holding LLCs, it is possible that the interest in those subsidiary
LLCs (and, by extension, the properties that they hold) could be placed in
jeopardy if the parent LLC ever were to be faced with a debt, claim or
judgment (since the parent LLC's assets would consist of its membership
interest in the subsidiary LLCs).
This is only one piece of the larger asset protection puzzle. You should
consult a qualified attorney who specializes in asset protection strategies
and/or estate planning for assistance in developing a comprehensive asset
protection plan.
Chrissie Mould
About the PowerHomeBiz.com Guide:
 Chrissie
Mould has over a decade of experience in business administration and
startup business consulting. She has helped launch companies in multiple
industries and has managed corporate administration and governance for
public and private companies. She is an incorporation specialist with
MyNewVenture.com LLC. The company provides low-cost incorporation services
to entrepreneurs and small businesses. Visit
www.MyNewVenture.com to form
a corporation or LLC.
The opinions expressed in this column are those of the
author, not of PowerHomeBiz.com. Users should not treat the Guide's response as
legal, accounting, or professional advice as all answers are intended to be
general in nature. Such advice can only be properly given by qualified
professionals who are fully aware of a user's specific geographical areas or
circumstances, such as an attorney or accountant.
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