Incorporate Business in USA
Incorporate business in U.S.
Form Corporation

Incorporate your business

Using an Umbrella Corporation to Protect Assets

An umbrella corporation, also called a holding company, has one main attraction for the owners of one or more small businesses: it can protect company and personal assets from potential liability.

The most effective umbrella corporation strategy is called the multiple-entry approach. In this organizational model the umbrella corporation is the receptacle for all accumulated wealth within the larger business structure. But, because the umbrella corporation does not directly engage in any type of business activities, the umbrella corporation has virtually no exposure to liability, and so the assets and profits that are held by the umbrella corporation are protected.

To create this type of umbrella corporation, the small business owner, or owners, first create a holding company. The holding company then creates and owns the operating companies, which actually do business, and so become exposed to potential liability.

Because the holding company invests only enough capital in the operating company to get it started, that initial investment is the only portion of the operating company's liability that the holding company can be held accountable for.

Once launched, the operating company will borrow money from the holding company to expand its capital, and the loans will be secured with primary liens against the operating company's assets. These liens are held by the holding company, making it a priority creditor, in case the operating company should declare bankruptcy. In addition to the financing loans, the operating company will also lease all of its major equipment and real estate from the holding company. Again, if the operating company should go bankrupt, or become liable for judgment, the equipment and real estate will not be lost, because it belongs to the holding company, not the operating company.

An umbrella corporation can launch and service many operating companies, as long as each operating company is fully independent. All of these companies will funnel profits back to the holding company, via their leasing of equipment and real estate, through their loan repayments, as well as in the form of profits passed on to the holding company for that portion of the initial capital that was invested in the operating company by the holding company. Hence, as much of the operating company's profits as possible are transferred to the umbrella corporation, where they are protected by its limited exposure to liability.

Want more information about registering a company? Visit our Guide. Check out incorporation fees by each state.

Tip: Did you know that Delaware and Nevada are top two incorporation states?

Ready to register a company? Choose one of these great online incorporators:

 Business Filings
 The Company Corporation
 My Corporation
Online Store:

How to Form Your Own California Corporation
from NOLO
Price: $21.00
 buy now

  ©2024 Incorporate, Form a Company informational site.   About   Privacy   Site map
Information here does not constitute a legal advice. Please contact an attorney or accountant for specific expertise.
Translate Website into Another Language: 

using an umbrella corporation to protect assets