Operating Entities

April 13, 2006

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When using holding and operating companies in a multiple-entity business structure, your operating entity is your primary business entity. All business functions occur within that company. Likewise, all of the risks to the business will occur within that entity as well.

Therefore, it is important, from an asset protection standpoint, to minimize vulnerable assets and cash within the entity through continuous withdrawal strategies, should an unanticipated event take place.

In addition, separate operating entities should be formed for each operating activity, so that any liability runs only to that particular entity's assets. The Delaware limited liability company (LLC) statute is especially suited for the use of multiple entities.

Also, the operating entity's assets could be separately protected through leases, loans and liens, as well as through the use of a separate holding company. This is an example of multi-layered protection.

Alternately, the one-entity approach to structuring your business does not accomplish these asset protection objectives.