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John, Attorney
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When creating a holding company LLC and then a subsidiary LLC

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When creating a holding company LLC and then a subsidiary LLC that is owned entirely by the holding company, does the subsidiary LLC have the limited liability for the holding company or is the holding company liable for the subsidiary? Can a creditor simply have a charging order against the subsidiary? I am trying to create a family investment holding company that would be the holding company. I was told though that if the LLC has solely one owner, the veil of limited liability can be pierced. Does the Subsidiary require another member?

EmplmntLaw1 :

Hi, answering your questions in kind: does the subsidiary LLC have the limited liability for the holding company or is the holding company liable for the subsidiary? The purpose of starting a holding company is to separate various property by business purpose, and the only way to totally isolate the entities from a liability perspective is for the entities to have a completely different business purpose or completely different members and agents. Otherwise, you always have the risk of a creditor to the subsidiary claiming that holding company is a “mere instrumentality”. Common factors in piercing the corporate veil include - shared principal offices, interlocking officers or frequent interchanges of employees, that the subsidiary is the parent’s exclusive distributing arm (i.e., the subsidiary only does work for the parent), or the parent’s revenues are entirely derived from sales by the subsidiary. So your answer ultimately, will depend on what exactly you plan on doing with the subsidiary and how you can differentiate that from the purpose of the holding LLC and the extent to which you keep officers and agents separate among and between the entities. A creditor to the subsidiary only would have to show in a lawsuit that piercing the veil is necessary to prevent an injustice along with the above factors to get to the holding llc's assets; it is not automatic.


EmplmntLaw1 :

If you need clarification or have follow-up questions regarding this matter, I will be happy to continue our conversation – select the Reply to Expert or Continue Conversation button. If you are otherwise satisfied with my response, please leave a positive rating as it is the only way I am able to build my expert ranking. Thank you, XXXXX XXXXX wish you all the best with this matter.

John and 6 other Business Law Specialists are ready to help you
Hi, answering your questions in kind: does the subsidiary LLC have the limited liability for the holding company or is the holding company liable for the subsidiary? The purpose of starting a holding company is to separate various property by business purpose, and the only way to totally isolate the entities from a liability perspective is for the entities to have a completely different business purpose or completely different members and agents. Otherwise, you always have the risk of a creditor to the subsidiary claiming that holding company is a “mere instrumentality”. Common factors in piercing the corporate veil include - shared principal offices, interlocking officers or frequent interchanges of employees, that the subsidiary is the parent’s exclusive distributing arm (i.e., the subsidiary only does work for the parent), or the parent’s revenues are entirely derived from sales by the subsidiary. So your answer ultimately, will depend on what exactly you plan on doing with the subsidiary and how you can differentiate that from the purpose of the holding LLC and the extent to which you keep officers and agents separate among and between the entities. A creditor to the subsidiary only would have to show in a lawsuit that piercing the veil is necessary to prevent an injustice along with the above factors to get to the holding llc's assets; it is not automatic.

If you need clarification or have follow-up questions regarding this matter, I will be happy to continue our conversation – select the Reply to Expert or Continue Conversation button. If you are otherwise satisfied with my response, please leave a positive rating as it is the only way I am able to build my expert ranking. Thank you, XXXXX XXXXX wish you all the best with this matter.