Say you are running a LLC or Corporation that does business in a lot of different fields.


To keep it relevant the WHT, your business also has a hosting service. Your hosting service is growing so well that you decide to separate it into LLC or Corporation, with your parent comapny owning 100% of it.


What are the advantages and disadvantages of doing so.


The advantages I can think of are:
Limited Liability : Only the hosting service can be sued, not the main LLC/INC.
Bankruptcy Protection: Bankruptcy of hosting service, will not effect parent company.


Disadvantages:
Cost of forming a maintaining two separate companies.
Chance of veil piercing being imposed by courts.

Are these correct, and are thier any other benefits/pitfalls to operating this way?

You really should talk to a lawyer about the specifics of your company and the laws in your state, but:
Limited Liability : Only the hosting service can be sued, not the main LLC/INC.Not exactly accurate. That might be some protection from creditors and regarding a potential bankruptcy, but if someone were to sue your hypothetical hosting company they also could sue the owners of that company -- even if that is the "main LLC/INC." And possibly the owners of thatcompany, depending on the specifics of what you'd be getting sued for, the structure of the companies, your state laws, etc.

The point is, don't overestimate the amount of protection you'd be getting. Forming a corporation or LLC doesn't bring the owners complete and absolute protection from liability.

in a lawsuit the corporation AND the owner(s) of the corporation are sued

if you are soooooo paranoid about about lawsuits take it offshore
and let anyone try to get you or the offshore HOLDING company


theres a pearl

I would think, if you ran your business correctly, didn't try any funny stuff, and complied with all regulations, then your personal assets would be untouchable unless a personal guarantee was made somewhere.

Originally posted by Lord MJ
The advantages I can think of are:
Limited Liability : Only the hosting service can be sued, not the main LLC/INC.


This is not true with the case of a corporation, the shareholders can be held liable, that's a given. Your liability with an LLC will depend on your articles of organization, various state and federal laws, and what you are being held liable for.

You should talk to an attorney (which I am not). Even if you are operating by the books, there are still a bunch of paper chasers out there and you never know who you'll piss off by accident.