Holding Companies Explained (Rental LLCs and Active Business LLCs?)

(lighthearted music)

- Are holding companies only for rental LLCs

or can they hold an active business LLC?

This is where I get my handy-dandy pen out,

and we're going to walk you through this.

The reason that we typically have a holding LLC

is 'cause we'll have a bunch of LLCs

in different states, or holding different assets,

and let's say each one held a little house.

Pretend those are houses.

And you have the holding LLC.

Here's you out here smiling.

If somebody comes after you, then we want to stop them,

and usually we use a Wyoming holding entity

or a Nevada entity, 'cause they cannot take the LLC away.

The other reason is, it makes a single entity

for taxation, if you're doing a 1065, a partnership.

So we only have one tax return.

If this house down here has a horrible

liability occurrence, it stays inside that box.

It doesn't infect the other boxes.

Now, what if I own shares in IBM?

And I own a bunch of IBM shares.

Should I put that into the holding company too?

You could, the problem is, is let's say

that they make an argument that you should've,

that they should ignore, we had this piece of property,

and they make an argument that somehow

you should ignore the LLC,

because you forgot to do some paperwork,

or they start trying to pick through it in court,

and they're trying to get to this guy up here.

They don't know about these.

If you have a bunch of stock, sitting in the Wyoming entity,

and they start doing discovery,

you may put yourself at risk on losing that,

'cause if they break through, and they get into the holding,

then they could perhaps take it.

Now it's highly unlikely, so it's always

a facts-and-circumstance test as to how aggressive

you want to be in your asset protection planning.

This, to me, looks like you have some assets.

Is it worth putting your stock at risk?

It depends on how much it's worth.

If it's $50,000 of a private company, or if it's $5,000,000,

I'm going to give you two different answers.

If it's just, hey, this is just my corporation,

and I have a C corp or an S, it's going to be a C corp,

it's not going to be an S, 'cause an S corp

has to be owned by you, but let's say we have a C corp

that's owned by you and you put it in there?

Really, no harm no foul, 'cause nobody's going to want

your corporation's stock anyway, you're using it,

probably you're keeping it fairly lean.

So you can do both, it's just

whether it's prudent to do both is really up to you,

as to what you're willing to risk.

(uplifting music)