How to Form an Umbrella Corporation

By Terry Walcott

A corporation is a legal entity formed under state law that has an identity separate from its owner-shareholders. An umbrella corporation is a standard corporation that owns and controls one or more subsidiary corporations. A subsidiary is a corporation that is at least majority-owned by another corporation — in this case, an umbrella or parent corporation.

Step 1

Investigate the corporate form of conducting business and the umbrella corporation corporate structure, and determine whether they are best suited to accomplish the goals of the prospective business enterprise. Corporations are permitted to own property, including other companies, and can enter into a wide variety of business, financial and legal transactions. Benefits of a corporation include the protection of owner-shareholders from personal liability for company debts and liabilities, the ability to raise investment capital through the sale of stock to investors, and the ability to transfer stock ownership by simply endorsing the corporation’s stock certificate.

Step 2

Form a corporation that will serve as the parent or umbrella company by filing articles of incorporation with a state business registrar — usually, the Secretary of State — and pay the required fees. Elect the board of directors of the parent company, and draft and adopt corporate bylaws. Draft and pass a corporate resolution that establishes the parent as a holding company, and authorizing the holding company to form subsidiary corporations.

Ready to incorporate your business? Get Started Now

Step 3

Incorporate a subsidiary corporation and place a provision in the articles of incorporation, prohibiting changes to the board of directors without parent company approval. Elect the subsidiary’s board of directors, and draft and adopt corporate bylaws. Include a prohibition against changes to the board of directors without the parent-umbrella company’s approval in the bylaws. Place assets from the parent-umbrella corporation into the subsidiary, in exchange for 100 percent of the subsidiary’s stock. The parent should own all of the subsidiary’s capital assets and lease those assets to the subsidiary.

Step 4

Form additional subsidiaries as approved by the board of the parent corporation. Note that all corporations in an umbrella structure must be C corporations. They cannot be S corporations because the Internal Revenue Code strictly prohibits a C-corp from having an ownership interest in an S-corp.

Ready to incorporate your business? Get Started Now
How to Create a New Company or Subsidiary of an Existing Company


Related articles

How to Start a Family Corporation to Transfer a Parent's Assets

A family corporation is simply an ordinary corporation in which all shareholders are members of the same family. You can use a corporation to transfer your parent's assets to other family members by transferring these assets to the corporation and naming family members as shareholders. This can protect the assets from your parent's creditors. Setting up a corporation is a fairly simple process, although the exact details vary somewhat from state to state. You don't have to establish your corporation in the state where your parent's assets are located.

Tax Laws for a Subsidiary Corporation

In order for the tax laws of subsidiaries to be applicable, the business must first meet the definition of a subsidiary under the tax code but this requires meeting very specific criteria. If the corporation qualifies as a subsidiary, its parent company may elect to consolidate its returns with the subsidiary as well as other subsidiaries. If a qualified subsidiary “spins off” from the parent, the stock of the subsidiary may be distributed to shareholders of the parent corporation without any tax implications.

LLC Vs. C Corporation

Limited liability companies and C corporations are both business entities. They are legally distinct entities that are treated separately from their owners, known as members and shareholders, respectively. State laws govern both LLCs and C corporations and these laws vary across state lines in detail. However, many of the same principals for LLCs and C corporations exist in all states. They have differences when it comes to management, business formalities, owner liability and tax treatment.

LLCs, Corporations, Patents, Attorney Help Incorporation

Related articles

How to Make My LLC a Parent LLC

A subsidiary company is a company that is owned wholly or in part by another company. The company that owns a majority ...

How to Form a Subsidiary Corporation in Florida

A subsidiary corporation is a regular corporation whereby a parent corporation holds at least a majority of its ...

How Do I Create an LLC Subsidiary?

Owners of companies with multiple departments and diverse investments may benefit from setting up a parent-subsidiary ...

Can I Have Many Businesses Under My Corporation?

A corporation is an independent legal entity that is formed under state law. It has an existence that is separate from ...

Browse by category
Ready to Begin? GET STARTED