Many people in business have heard of an umbrella corporation, or have heard of a company operating under a corporate umbrella, without having a clear concept of what that is.
corporation" is one of those terms that gets tossed around, but there
isn't always a clear idea about what it is. That is because there is no
formal business category for an umbrella corporation. Unlike a
C-Corporation or S-Corporation or LLC, which are incorporated, the
corporate umbrella is more of a concept than it is a legal entity.
an umbrella protects anyone standing under it, an umbrella corporation
is a corporate shield or grouping that protects the smaller companies
under its "umbrella." There are several advantages for companies to
work together in this way.
Here are Three of the Biggest Advantages for the Companies
Benefit #1 - Group Benefits
When companies work together they may be able to take advantage of
certain benefits that the individual companies might not qualify for,
or would not be able to afford on their own. Because of the number of
people involved, many benefits become more accessible and affordable.
Some benefits, like 401K plans and health
care plans, can be very expensive for individuals or small groups to
purchase on their own. Being a part of an umbrella corporation lowers
the cost for each individual. The bigger the group, the lower the cost
Some insurance companies that specialize in
business plans will not work with small companies. The size of the
makes more of these plans available. That gives
the company leverage to consider several different insurers and get the
best possible coverage for their money.
Benefit #2 - Sharing of Resources
Benefit #3 - Discounts on Purchases
It is difficult for smaller companies to
pay for all of the administrative support they need to operate.
Departments like human resources and legal resources are very helpful,
but many times are impractical for a small company to have. Many times
administrative personnel have to take on multiple functions to cover
all of these areas.
By using the this
concept, the larger corporation can supply a lot of the administrative
support for the smaller companies. The smaller companies all pay a
portion of the cost of operating that department, but no one company
has to bear the entire cost.
In the case of the legal
department, the attorneys for the main corporation are able to support
all of the smaller companies that fall under its umbrella. Each company
contributes to the legal departments cost, but the amount is much more
affordable than if the company had to pay the entire expense.
the buying power of each individual company might be somewhat limited,
the umbrella corporation could be a buying group that qualifies for
some significant discounts on their purchases. Because the group
purchases so much, each entity can take advantage of the discounts.
One example of this would be office supplies. One company might not use
enough office supplies to make a difference to the supplier, but
numerous companies grouped together under one umbrella can make a big
difference to the supplier. In order to ensure that they remain the
supplier for the umbrella corporation, the supplier will be willing to
offer better prices to all of the companies involved.
use of the umbrella corporation is not uncommon in the business world.
By grouping several smaller companies under the umbrella of a parent
corporation each company can take advantage of benefits and discounts
that would not be available to the smaller groups.
are considering becoming part of an umbrella corporation, you should
seek advice from a legal attorney to make sure it is the right move for
For more information See:
Points to Keep in Mind
- Many suppliers will offer discounts to ensure they remain the supplier for an umbrella corporation.
- By paying part of the fees, smaller companies can take advantage of administrative support from the parent company.
- Some insurers may not offer services to small companies and organizations.
- An umbrella corporation is not a formal corporate category.
- Through umbrella corporations, smaller companies receive the benefit of purchasing power as if they were a larger company.
Corporation and LLC Tips: Original articles on the ins and outs of setting up a corporation and LLC.