What Is An Umbrella Corporation?

Learn what an umbrella corporation is. It can benefit employees and employers alike with tax incentives, cost breaks for insurance, and benefits for your particular industry.

When creating a business one must always consider the pros and cons and make decisions based on the probable future. Sometimes it is best to plan big and fill in the spaces as you go and other times it is best to start small. If you believe and have proof that you are entering a market that will require you to expand rapidly, you are creating a business that will resell services or contractors, will create many companies or subsidiaries, or you want to offer a corporate identity to other companies, consider the idea of an umbrella corporation.

WHAT IS AN UMBRELLA COMPANY?

An umbrella company resembles its namesake, the umbrella. The umbrella shields those beneath it from the sun. In the case of business, the umbrella becomes a corporate shield or an identity that is used for various reasons. Those beneath the umbrella are usually separate companies that share services, conveniences, and collective legal or financial transactions. Typically finances are recorded separately under an umbrella company but the ability to gain from acquisitions and perform internal transactions can be utilized.

Generally speaking, umbrella corporations are not a category of corporation but instead are a way of structuring corporations to offer benefit either to the customer or to the corporate entities housed.



TYPES OF UMBRELLAS

The term umbrella is a general term used by many businesses to include many things. An umbrella, as stated before, houses or shields and the term can be used in any variety of ways, some more creative than others. You will hear the word umbrella being used in corporate branding. Proctor and Gamble for instance is a corporate brand. Proctor and Gamble is the umbrella for a variety of products including Oil of Olay, Tide, and Crest toothpaste.

Corporate umbrella communications is often used when referring to a way of speaking to employees, customers, the public, or an industry. Corporations often use this method to convey information that needs a level of authority attached to it. An example would be product tampering, product misinformation, or a lawsuit directed at a brand under the corporate umbrella.

WHAT ARE THE BENEFITS?

The term umbrella is also used in reference to insurance policies, payroll companies, and staffing agencies. Many organizations or associations can offer discounted insurance and benefits because they are an umbrella company. Your local Small Business Association may be one such organization. These types of companies operate under the umbrella of membership size.

On a larger scale, umbrella corporations have power enormous due to the sheer size of their overall workforce. These corporations can often demand and receive group benefits that, as a result, are less expensive. The benefits, of course, being passed on to their employees and in some cases their customers. Walmart and Sam's Club are great examples of the power of size.

Additional corporate benefits include the ability to manage cash flow more easily. An umbrella corporation can utilize legal, accounting and collection activities more effectively. There are tax saving benefits that can be utilized and the overall cost of keeping staff on board to deal with legal and accounting issues is cheaper as a whole than it would be separately.

Utilizing the concept of an umbrella corporation in an innovative manner can give its protected corporations a competitive advantage.

WHAT ARE THE RISKS?

The risks of an umbrella corporation are well known. They can often grow so large that they become inefficient. Many times these inefficiencies provide the means to hide improper or illegal activities. These illegal activities can happen among the employees as a single situation or mastered through the string of companies housed within the umbrella and encompass fraud on a large scale.

CONSIDER AN UMBRELLA

Federal law allows the use of umbrella corporations in order to encourage growth in the business sector. A small company cannot afford many of the necessities required to run a business properly. If you find you are struggling with business finances, consider operating your small business under a corporate umbrella. Get creative and you may find there are tax advantages or other benefits for your industry, your business structure, or your employees.

© High Speed Ventures 2011