should I start a parent/holding company or keep them separate LLC

Question

I have spoken to an attorney and I just want some clarification on business operations. I am starting a repair business and will also be starting an real estate rental business/ Airbnb. I will be forming an LLC for the repair business and was planing on forming an LLC for each property as I invest. Is it worth setting up a parent LLC for my companies or keeping them all separate? and if I do set up one is worth setting one up out of state in a state such as Nevada/ Delaware/ Wyoming or keeping the parent company in state which the 2 LLC's will be in.

Erik Adams · Answer

Thank you for the reply. I will be setting up ay least one LLC for my repair business. The Airbnb/real estate is just going to be passive income and I will have an umbrella policy for such. I can easily manage holding multiple separate LLC’s as I have done previously, I am just really trying to understand why some people choose the parent/holding LLC over just keeping them as separate entities. My research and personal experience concludes that the holding company owns all the assets and the operating company rents or leases them from such and the holding company can’t be held liable for the operating company’s negligence, but that’s not true as in the case “ garden city co v burden”. I also had a long time friend who had a construction company as the holding with 5 different subsidiary’s and one got sued for a fire and they took all the company assets and he filed for bankruptcy, the only thing that saved him personally was his umbrella policy’s. As a small to mid sized businesses it doesn’t seem like it is worth it to have a holding/parent company because of the extra management oversight needed, to the people who have gone the route of owning a holding company what extra benefits have you gained and as a small business would you do it again?

Erik Adams · Answer

Thank you for the response, that is basically the information I have received from my attorney and he doesn’t recommend a series LLC unless you have a dedicated financial team to manage your funds.

Erik Adams · Answer

I don’t want to start a series LLC it doesn’t provide the asset security I am looking for and my attorney has strongly suggested against it. I was just wondering why some people choose the parent model over the separate LLC

Stephanie P. · Answer

@Erik Adams

Lots of good information on BP for this subject.  I've attached one link.

From a lender's perspective, it's much more of a pain to do the parent and then children LLC's because

• we need the entity documents for all of them
• most lenders require the LLC to be specific to their transaction
• you'll need to keep the funds separated and many times, the LLC doesn't have the assets for reserves
• the filing fees for each entity can become onerous and 
• if the property is in a different state, you'll need to provide the foreign entity registration as well as the certificate of good standing in each state

Instead of setting up all of these different LLC's etc..., until you get to a point where you can no longer use Fannie Mae and Freddie Mac financing, get a good umbrella liability policy so you can enjoy the more favorable financing.

https://www.biggerpockets.com/renewsblog/the-tradi...

Casey Powers · Answer

I personally would keep the different businesses entirely separate for liability reasons.

Series LLC can be good for holding properties but many people screw that up by co-mingling funds / books. The only way this actually works correctly is by keeping each property’s money and books totally separate. No combined invoices or expenses, etc.

I used to be a registered agent.

Nick Rutkowski · Answer

@Erik Adams someone on here did a post about Series LLCs. Try searching in the forms, you might come up with a more informed decision.