Speaker 1: So why did the business owner give an umbrella to his employee? Because he had the cover for him. All right, let's go ahead and talk about how to start an umbrella or holding LLC company step by step. So first off, you need to know that an umbrella company is basically a business entity that controls multiple businesses at once. So if we're thinking about like a company chart at the very top, you have an umbrella company, right? Hence the name umbrella company, because it's kind of like an umbrella. And then beneath the umbrella company, you have other operating businesses or assets, which are typically called subsidiaries. Now you may hear umbrella companies and subsidiaries call different things. So for example, some people refer to umbrella companies as the parent company and the subsidiaries as the child companies. Or you may hear umbrella companies referred to as holding companies. All right. It's all basically the same thing. Now the holding company does not generate any revenue or run any specific business operations. It simply holds stock in the subsidiary or other operating companies. Whereas the subsidiaries are actually the operating companies like those businesses actually produce revenue and then the revenue and profits are consolidated inside of the umbrella company. All right. So the first step, step number one for creating an umbrella or holding company is simply to form the business entity. Now, typically you're going to want an umbrella company established as something like an LLC or a corporation, because that offers limited liability protection, which basically protects your personal assets against any other business disputes or legal issues. So let's say for example, that you decide to create an LLC umbrella company. What you need to do first is to complete the articles of incorporation and then submit them to your secretary of state office. The biggest things you're going to need at this point are number one, you're going to need the name of your holding company. Number two, you need a registered agent, which could be you or someone else that you choose. And then number three, you're going to need to pay the cost to get the business set up. Now, if you've ever established an LLC before, then the process is pretty similar for creating an umbrella company. So after that, you're ready to move into step number two, but really quick before I move into step number two, if you are new to our channel, welcome. I'm Sean with Life Accounting, the accounting company that saves people from high taxes and low profits. Look, if you're enjoying this video and this topic so far, please support our channel by hitting the like button for the YouTube algorithm. It makes us really happy and subscribe if you're really serious about building tax free wealth. All right. So step number two, create your operations agreement or your bylaws for how your umbrella company will operate. Now, this is also pretty standard when it comes to creating and setting up an LLC in general. But the key in this step is to make sure that you create a cost in your operating agreement, establishing that the new LLC, which will be your umbrella company, is authorized to form subsidiary companies. Because this is really where you start to establish the control between the parent company and the child company. Again, that could be the umbrella company or the holding company. And it does this through this legal step where you're creating these provisions and clauses in your operating agreement. And while you're at this step, of course, it's important to make the decision of who will actually manage your umbrella company, like who are the managing partners and then who are going to be your limited partners, as well as establishing a board of directors, because all these parties would likely need to sign off on these bylaws or operating agreements. Now, after that, you can move into step number three, which is to create your subsidiary. Now, there are two ways to transition into step number three. So if you're starting a new company from scratch, then you can simply create a new LLC as your umbrella company and then create another new LLC that would act as your subsidiary company. And after you get these two entities set up, there's just one more step that you need to take in order to tie these two entities together, which we'll get into in a second, right after we talk about the second way to transition into a new LLC. Because of course, after working with so many people, the opposite scenario is true, right? Like more often than not, you already have an LLC that acts as an operating company. And what you want to do is turn your existing LLC into a subsidiary of your new umbrella company. And in this case, what you need to do is create an LLC that will act as your umbrella company by following steps number one and step number two. And now with your existing LLC, what you need to do is create a new operating agreement or amend your operating agreement for your existing LLC. So what you need to do is basically place a provision within your articles of incorporation or your existing operating agreement stating that no changes can be made to the management of the operating company or the subsidiary company without the umbrella company's approval. Okay. And now this essentially gives complete control to the umbrella company over the management of its subsidiaries. All right. So if you already have your articles of incorporation or operating agreement, just simply go back and amend that. And typically you can do that around your new annual registration period for your LLC. And if you have multiple LLCs, like you have multiple operating agreements and you're trying to tie it all together and you would just repeat step number three to get them all under your new umbrella company, your holding company, your parent company, whatever you want to call it. Right. All right. So let's tie all of this together. Step number one, create a new LLC that will act as your umbrella company. Step number two, create bylaws that specify the intent of the new LLC, which is to be a holding company. And then step number three, create a new operating LLC or amend an existing LLC to become a subsidiary of your new umbrella company. Now, if you're wondering exactly why you should start an umbrella or holding company and make sure you watch my video on should you start a holding company linked above or coming up next? Because of course there are many advantages and some disadvantages that you need to be aware of before you actually go about setting up a holding or umbrella company. Now, I hope you enjoyed this brief video on how to start an umbrella company step by step. If you have any questions, make sure you put them in the comment section below and I'll try to get to as many as I possibly can. As always, thank you so, so much for watching and I'll see you in my next video.