Having billions of dollars at your disposal must be a lot of fun. For instance, you could use some of your money trying to develop a self-driving car, try to figure out how to use drones to deliver goods and merchandise to your consumers’ doorsteps, build massive barges in the middle of San Francisco Bay for who knows what reason1)Is it inappropriate to make a Fountainhead joke? Hopefully.. The point is: money may not buy happiness, but it will allow you to have some fun you probably could not have otherwise.
Google’s founders are swimming in money, figuratively speaking and maybe even literally2)who would be surprised if Google announced that one of its secret projects was the development of the first swimming pool full of $100 bills instead of water.. A mid-90s research project to build a better online search engine has ballooned into a behemoth technology company with interests as far flung as you can imagine. Google’s growth certainly presents a systemic organizational challenge in trying to develop the myriad of different products, projects, and business interests that Google has taken on.
Enter Alphabet, Inc.
On August 10, 2015, Google announced plans to organize a new corporation, Alphabet, Inc., to act as a parent company for not only Google, but also for many of Google’s other business interests. Why would Google need to add another layer of corporate structure to what appears to be an otherwise, well-oiled machine?
For starters, the parent company model will allow Google to remain flexible and diverse in its various business endeavors and still-under-development business projects. Presumably, Alphabet will also spin off countless other subsidiary companies under Alphabet3)A subsidiary company is a company that is owned 100% by the parent company, while the parent company is owned by individual shareholders. For instance, upon Alphabet’s organization, shareholders of Google stock will receive new Alphabet stock and Alphabet (the parent) will be owned by regular Joes like you and me. On the other hand, Google, now as a subsidiary of Alphabet, will have only one shareholder: Alphabet itself. . Each subsidiary will become its own separate business with its own officers, directors, and employees. Thus, it is assumed that the current arm of Google that is working on developing the self-driving car could be spun-off to a separate business entity (for example: Self-Driving Cars, Inc.), while the search engine aspect of the business will continue to operate under Google, Inc..
Google thrives on ingenuity and creativity. Spreading corporate governance more broadly will take advantage of the creative juices of its people who will theoretically take on more responsibility with new job titles of CEO, President, and Director of Let’s-Make-Stuff-Up-That-Would-Be-Totally-Awesome4)tm pending.
Even if you are not Google, an Alphabet may be for you
Similarly, separating out business interests creates a powerful asset-protection model that prevents one division of a company from dragging down the rest of the company in the event of a business disaster. For example, if Google’s wide-ranging business projects are currently doing business all under Google, Inc., then a liability that might arise when5)if a self-driving car goes rogue on the streets of San Jose and runs someone over. This could, in turn, affect business operations in the unrelated Google Translate department. Instead, with subsidiaries, Alphabet will isolate liabilities and protect other subsidiary companies from the dangers of liabilities caused by other aspects of the business.
Again, imagine that the self-driving car caused personal injury, and a fine personal injury attorney6)hopefully our hypothetical victim is lucky enough to be represented by lawyers as fine as our own Mr. Richards or Mr. Featherstone, Esqs. sued Self-Driving Cars, Inc., and won a court verdict of $5,000,000 in damages. With subsidiary companies, the injured person can look only to Self-Driving Cars, Inc., for payment of the court verdict. The injured person cannot look to Google Translate, Inc., to tap into its resources to pay the verdict because Google Translate, Inc., is treated by the law as a wholly separate legal entity that is not subject to the debts or liabilities of the other subsidiaries. This kind of asset protection allows Google to continue to innovate with speculative projects that may be more dangerous and prone to liability than you might expect from a company like Google Translate.
Dr. Canal is kind enough to provide us with an example
Google’s reorganization with Alphabet at its head does raise some interesting tips that even Jane Doe in Nevada could follow to her benefit. Most of us regular Nevadans do not have swimming pools full of $100 bills, nor are we investing our funds in the development of the first working time-machine, Delorean. However, many Nevadans do have varying business interests that could be protected from each other.
For example, consider your local dentist, Dr. Root Canal. Dr. Canal’s dental business actually consists of several different aspects: the practice of dentistry itself, the purchase, leasing, and use of medical equipment, and possibly the purchase and ownership of the building that the dental office is located. Thus, Dr. Canal actually has three separate business interests, all of which could be safely and legally protected from the other.
For example, imagine that Dr. Canal does a poor job on his next tooth extraction and his patient, Ayall B. Suing, sues him and his company, Root-Canals-R-Us, for dental malpractice. Dr. Canal loses the trial and the District Court for Clark County tells Dr. Canal and Root-Canals-R-Us that they must pay Mr. Suing $500,000 for his pain and suffering. Dr. Canal, unfortunately, kept all of his business interests (the dental practice, the dental equipment, and the office building) under just one umbrella: Root-Canals-R-Us. Thus, when Mr. Suing begins poking around for payment on his judgment, Mr. Suing first takes all of the business bank accounts, but he does not stop there. Next, he literally takes all of Dr. Canal’s examination chairs, the x-ray machine, and a box of promotional toothbrushes and even the dental floss to boot! Finally, Mr. Suing puts a lien against the building for the remaining amount of his judgment that was not covered by the other items he collected from Root-Canals-R-Us.
If Dr. Canal had followed Google’s lead, he would be in a much better situation. Dr. Canal could create separate business entities for each of his business interests: Root-Canals-R-Us to operate the actual dental practice; Dental Equipment, Inc., to own the dental equipment (which leases the equipment to Root-Canals-R-Us); and Dental Building, Inc., to own the dental building (which leases office space to Root-Canals-R-Us). Thus, when Mr. Suing looks for payment on his judgment against Root-Canals-R-Us, he will be limited to only that which Root-Canals-R-Us actually owns, which in this case would only be the business bank accounts (in general). Mr. Suing would not be able to swipe the examination chairs or put a lien on the building because those assets are owned by totally separate legal entities, which do not owe Mr. Suing anything.
Google, Alphabet, and the Series LLC in Nevada
Unlike with Alphabet, however, most Nevadans in these situations probably would not have a pressing need for a parent corporation to own separate subsidiaries because doing so for the average Nevadan unnecessarily adds another layer of corporate structure with minimal purpose. However, think again. Nevada is one of a handful of states that allows an ingenuous business entity called a Series LLC. In a Series LLC, the owner creates just one business entity with the State of Nevada, but then is allowed to create a “series” under the main LLC. Each series does not have to be registered with the State; only the main LLC. The beauty of this is that each separate series LLC is treated as if it is a totally separate business entity. For example, Dr. Canal can create Root Canal, LLC, as a series LLC, and then he would create Series A: Root-Canals-R-Us, Series B: Dental Equipment Company, and Series C: Dental Building Company. Thus, Dr. Canal accomplishes a parent-subsidiary type relationship (his own little Alphabet) where each series is treated as a separate business with asset protection between the different series.
Though you may not have billions to play with business ideas like Google, by creating and using a Series LLC you too can and should protect your business interests simply and powerfully. And, now that your business assets are sufficiently protected, you can finally create that Series D you always wanted: Build-a-Moonrover Company.
Footnotes [ + ]
|1.||↑||Is it inappropriate to make a Fountainhead joke? Hopefully.|
|2.||↑||who would be surprised if Google announced that one of its secret projects was the development of the first swimming pool full of $100 bills instead of water.|
|3.||↑||A subsidiary company is a company that is owned 100% by the parent company, while the parent company is owned by individual shareholders. For instance, upon Alphabet’s organization, shareholders of Google stock will receive new Alphabet stock and Alphabet (the parent) will be owned by regular Joes like you and me. On the other hand, Google, now as a subsidiary of Alphabet, will have only one shareholder: Alphabet itself.|
|6.||↑||hopefully our hypothetical victim is lucky enough to be represented by lawyers as fine as our own Mr. Richards or Mr. Featherstone, Esqs.|