Worth creating an umbrella company?

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“Kia ora! Seeking advice on the following situation; I’m very open to hearing your expereinces/thoughts/opinions.

I am a full time salaried worker.

I own two side hustles, and am about to begin a third.

I also own a property (was owner occupied, now tenanted).

I had an idea over the weekend to create an umbrella company to be the owner of my side hustles, and to take ownership of my property.

Is this feasible? What are the pros and cons? Genuinely asking as I’m not sure where to begin my research on this, and what steps I need to take should I wish to go down this path.”
(Original question on Reddit)
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Creating an umbrella company to manage multiple side hustles and property can be a smart move. It offers several advantages, but it also comes with considerations and potential complexities.

Pros:

Liability Protection: An umbrella company can provide liability protection by separating your personal assets from the business. If any of your side hustles incur debts or legal issues, they’re contained within the umbrella company, protecting your personal assets.

Streamlined Management: Centralizing multiple businesses under one entity can make administrative tasks, such as taxes, accounting, and legal compliance, more straightforward.

Scalability: It allows for easier expansion. If you plan to grow or add more side hustles, having an umbrella company can make it more organized and scalable.

Tax Benefits: Depending on your location and structure, an umbrella company might offer certain tax advantages and deductions that individual businesses might not.

Cons:

Complexity: Managing an umbrella company requires additional administrative work. You might need professional assistance (accountants, lawyers) to set it up correctly and manage ongoing compliance.

Costs: Establishing and maintaining a company involves fees, such as registration, annual filings, and potentially higher accounting costs due to the added complexity.

Risks: While an umbrella company can protect personal assets, if one of your businesses faces severe issues, it might affect the others under the same umbrella.

Steps to Consider:

Research and Consultation: Start by researching the legal and financial aspects of setting up an umbrella company. It might be wise to consult a lawyer or an accountant who can guide you through the process and help you understand the implications.

Business Structure: Decide on the type of entity that suits your situation – LLC, Corporation, etc. Each comes with its own legal and tax implications.

Registration and Compliance: Once you choose a structure, you’ll need to register the company, obtain necessary licenses, and ensure compliance with local laws and regulations.

Operational Considerations: Plan how you’ll manage the day-to-day operations, finances, and reporting for the umbrella company and its subsidiaries.

Financial Planning: Consider how this setup affects your personal finances, including taxes and funding for the umbrella company and its businesses.

Remember, while an umbrella company can offer benefits, it might not be suitable for everyone. Analyze your specific situation and future goals to determine if it aligns with your needs. Professional advice is crucial before making this significant decision.

Hope this helps.

Regards, Clive Fernandes (Financial Adviser)

Director – National Capital

Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.