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Mia
02-09-2016, 12:49 PM
We own an existing sole proprietorship that is a small construction company. I will soon transition this to an LLC. We own (outright) several vehicles for business use. We also outright own several vehicles for personal use. I have a personal insurance policy for these, and a commercial policy for the biz vehicles.

Ive recently set up a holding company LLC with the intention of having it own the (soon-to-be) construction company LLC as a wholly owned subsidiary. Id also like to create a property management LLC which will also be wholly owned by the holding co. (Eventually to manage properties owned (in the future) by the holding co.

Id like to transition the vehicle ownership of the construction co vehicles the the holding co and then lease the vehicles back to the construction company. Id also like to transfer ownership of the personal vehicles to the holding co and lease them back to us personally.
In order to transfer ownership / titles of the vehicles to the holding co, the holding co needs proof of insurance in its name.

My question is this:

How does this work, exactly, and whats the best way of going about it? Does the holding co need to directly carry insurance on the vehicles? Or is this arrangement altered via the lease agreement so that the insurance burden is on the leasee? Our current insurance carrier says they cant insure the vehicles if the holding co owns them since the holding co will be deriving its income from "leasing vehicles". Do I just need to find another carrier? Or should the policies be held by the entities leasing the vehicle? <---this seems right, but how does the holding co still own the vehicles without direct coverage?

Thanks for any clarification you can offer. I feel like Im close to understanding how this works, but maybe Im missing some crucial piece of info. :)
Cheers,
~M

Owen
02-09-2016, 02:55 PM
We own an existing sole proprietorship that is a small construction company. I will soon transition this to an LLC. We own (outright) several vehicles for business use. We also outright own several vehicles for personal use. I have a personal insurance policy for these, and a commercial policy for the biz vehicles.

Ive recently set up a holding company LLC with the intention of having it own the (soon-to-be) construction company LLC as a wholly owned subsidiary. Id also like to create a property management LLC which will also be wholly owned by the holding co. (Eventually to manage properties owned (in the future) by the holding co.

Id like to transition the vehicle ownership of the construction co vehicles the the holding co and then lease the vehicles back to the construction company. Id also like to transfer ownership of the personal vehicles to the holding co and lease them back to us personally.
In order to transfer ownership / titles of the vehicles to the holding co, the holding co needs proof of insurance in its name.

My question is this:

How does this work, exactly, and whats the best way of going about it? Does the holding co need to directly carry insurance on the vehicles? Or is this arrangement altered via the lease agreement so that the insurance burden is on the leasee? Our current insurance carrier says they cant insure the vehicles if the holding co owns them since the holding co will be deriving its income from "leasing vehicles". Do I just need to find another carrier? Or should the policies be held by the entities leasing the vehicle? <---this seems right, but how does the holding co still own the vehicles without direct coverage?

Thanks for any clarification you can offer. I feel like Im close to understanding how this works, but maybe Im missing some crucial piece of info. :)
Cheers,
~M

Transfer the deed of ownership of the vehicles to the holding company once it's registered. You can then transfer the asset rights to the holding company with full ownership of the subsidiary under the holding company. Things like contracts and stuff will have to be decided later.

Mia
02-09-2016, 03:02 PM
Transfer the deed of ownership of the vehicles to the holding company once it's registered. You can then transfer the asset rights to the holding company with full ownership of the subsidiary under the holding company.

Thanks for replying. Forgive my ignorance, but what is the difference between deed of ownership and asset rights? Also, as I mentioned, I cant transfer the titles of vehicles to the holding co without the holding co having vehicle insurance in its own name. So how does that work? Also, who holds the insurance in the end?

Owen
02-09-2016, 03:37 PM
Thanks for replying. Forgive my ignorance, but what is the difference between deed of ownership and asset rights?

I'm speaking of the sense of assets that don't contain a deed of any kind. You'd need to transfer owned land and contracts over to the holding company in order to own it successfully. Everything will basically be in the holding company's name including paychecks, taxes, etc. These assets could be things like a sign, printers, equipment, etc. The things that wouldn't be in the holding company's name is things like mail and things. You can also run a bank account under the subsidiary for checks, though you can still manage finances and claim your tax return under the holding company.

Regarding the vehicle insurance, you would need to get vehicle insurance under both companies temporarily. Once the vehicle assets have been transferred over to the holding company you can cancel your insurance under the subsidiary. In the end the holding company will hold the insurance. As you're leasing the equipment to the subsidiary, the subsidiary will need renter's insurance. This is to make sure you're both covered if, for example, an employee at the subsidiary breaks your equipment.

Fulcrum
02-09-2016, 05:57 PM
If I understand correctly, you want to transfer the ownership of the vehicles and equipment to a secondary holding/leasing company, that you also own, and than lease them back to your primary business. It shouldn't be overly difficult to do but you should speak to an asset protection specialist or tax lawyer because there may be some tax issues (land transfer taxes if real estate is being transferred).

As for the insurance, make sure you have some written contracts between the two companies that spells out everything from insurance, repairs, length, buyouts, etc. Again, speak with a lawyer about this.

@Owen
The proper term you're looking for is title, rather than deed. To the best of my knowledge deeds are primarily for real estate while titles are attributed to chattels.


This is to make sure you're both covered if, for example, an employee at the subsidiary breaks your equipment.
Outside of deliberate sabotage, I can't see insurance covering equipment due to an employee breaking something. In the 10 years I spent making tooling I've seen machines go down for many reasons (fireball, crashes due to negligence, and one crash that I still can't figure out after 10 years) that had an accumulated loss of well into the 7 figures (mostly due to not stocking common replacement parts that required 2-3 weeks for delivery) and insurance didn't cover any of those losses.

Paul
02-09-2016, 05:58 PM
Our current insurance carrier says they cant insure the vehicles if the holding co owns them since the holding co will be deriving its income from "leasing vehicles". ~M

It may be your states's state insurance regulations for vehicle leasing companies or the carriers own criteria. The holding company isn't just a holding company anymore, it is engaged in the business of leasing vehicles. That makes the vehicles a commercial asset/equipment which may be treated differently for insurance than standard passengers vehicle. That may be the rub.

You can own/transfer non insured vehicles. It's about registering them for use on the road.When you lease a vehicle from a dealer you register and get insurance in the name of the lessee (in my state anyway).

It may be a matter of registering the Holding company as a car dealer/lease company in accordance with local regs.

Paul
02-09-2016, 06:24 PM
I'm speaking of the sense of assets that don't contain a deed of any kind. You'd need to transfer owned land and contracts over to the holding company in order to own it successfully. Everything will basically be in the holding company's name including paychecks, taxes, etc. These assets could be things like a sign, printers, equipment, etc. The things that wouldn't be in the holding company's name is things like mail and things. You can also run a bank account under the subsidiary for checks, though you can still manage finances and claim your tax return under the holding company.

Actually you wouldn't typically transfer assets (other than the chosen vehicles) to the holding company. The operating LLCs would typically own their own assets and the holding company would simply own the LLCs (shares).Finances typically would run seperatly for each operating LLC from seperate banking accounts, payroll etc. The holding company could act as a management company.

Owen
02-09-2016, 07:00 PM
Actually you wouldn't typically transfer assets (other than the chosen vehicles) to the holding company. The operating LLCs would typically own their own assets and the holding company would simply own the LLCs (shares).Finances typically would run seperatly for each operating LLC from seperate banking accounts, payroll etc. The holding company could act as a management company.

That's what I mean, if he wanted it could act as a management company. For example, I used to work at a bowling alley, which is owned by a large New England holding company, and all their paychecks were paid under that company even though the company was registered as an LLC in New Hampshire.

Mia
02-10-2016, 11:33 AM
That's what I mean, if he wanted it could act as a management company. For example, I used to work at a bowling alley, which is owned by a large New England holding company, and all their paychecks were paid under that company even though the company was registered as an LLC in New Hampshire.

As I understand it, the main purpose of the holding co would be strictly to own assets. It makes its money through rents, leases and loans, as well as other investment vehicles. It does not DO anything, and thats where the protection would come from from liability. If (say) the construction co got sued, it would not own any assets, and would just go bankrupt, but the vehicles, tools, buildings etc would revert to the holding co since they would be leased. The best arrangement for real property would be for the holding co to loan $ to a management LLC for purchase with the property as collateral. In the event of a lawsuit, the property would revert to the holding co and thus be shielded.

Im a bit new to the accounting aspects of holding co investments, but it seems that expenses incurred before the asset becomes profitable are not deductible - therefore any improvements made to property (say) before it was rented would not be a deduction. Thats why you have the management co handle all that and the holding co just siphons off the profits in the form of loan monies.
If Ive got this turned around, Im open to clarification.

Re: the vehicles - I think if I just assign one vehicle to the holding co, then I will have / can get car insurance in the holding co's name. From there I can transfer whatever vehicles, since I just need PROOF if insurance, not proof of insurance on each specific vehicle. It seems like a lease agreement would function somehow similarly to what happens at a dealer when you lease a car. The lease agreement specifies that the lessee is responsible for insurance - the dealer does not insure the vehicle for you, even though they own it. Oddly, there is lots of info out there on how holding co's can lease back assets, but not so much on the details of structuring those arrangements.

Thanks to everyone who contributed thus far. :)

Owen
02-10-2016, 11:40 AM
If (say) the construction co got sued, it would not own any assets, and would just go bankrupt, but the vehicles, tools, buildings etc would revert to the holding co since they would be leased.

If a subsidiary is going to get sued you don't sue the subsidiary, you sue the parent company. They would be suing the holding company on behalf of the subsidiary.