It is very common to see a corporate structure involving a holding company with separate operating subsidiaries, particularly through limited liability companies (LLCs), designed to enhance a business’ operational efficiency, risk management, and strategic flexibility. Holding companies generally own the assets of the operating companies, however it is rare for them to directly engage in the daily operations. This structure may be beneficial for companies servicing different trades such as commercial and residential real estate or private investments across various industries. Each LLC is able to operate independently while benefiting from centralized control and shared resources.
The separation of business entities, with a holding company governing in paramount, allows for certain mitigation of risks and protection of assets that occur from the use of a single business entity. For example, if an operating LLC is presented with a legal suit or financial issues, the holding LLC’s assets, and the other operating LLCs, are generally protected from those liabilities. From a tax perspective, the profits and losses may be strategically allocated across the different LLCs to minimize overall tax burden. Lastly, this corporate structure provides flexibility in raising capital, as investors can buy into specific parts of the business without affecting the entire organization. This is a common practice for real estate investment companies.
Such a corporate structure is not without its disadvantages, namely the complications of maintaining multiple LLCs, increasing administrative and potential regulatory costs and supervising activities across separate industries, if relevant. Each LLC may bear its own set of legal requirements, if established in separate jurisdictions, and this can become burdensome. Finally, the tax benefits associated with this corporate structure may vary depending on jurisdiction and specific business circumstances; it may not always provide the expected advantages. Spearus Advisors can help structure planning and provide consultation to navigate these complexities and discuss the benefits of this restructuring approach. Contact us today.
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