The Benefits of an Umbrella Company

I briefly mentioned using an umbrella company in 6 Tips to Picking a Great Company/Product Name, but I want to go a little further in explaining.

Not exactly an umbrella company

An umbrella company is one company name that you run all of your startups under. You may have 5 startups, all with different product names and domain names. By placing them all under the same main company name, you unify them in a way that has certain benefits.

  • The umbrella company can be the one registered with tax authorities.
  • The umbrella company can feature your startups (or the best ones) with links to them.
  • In the footer of your startup sites a convenient "a service of X" (X being the umbrella company) allows you to link to your main company, connecting all your sites via indirect links.
  • The umbrella company can change business status, from sole proprietor to LLC to corporation and never have to change the status of its sub-sites.
  • Given the difficulty of finding good domain names, you can use a subdomain of your umbrella site's domain instead, like Google does: for Gmail
  • The above practice can cut costs of needing multiple SSL certificates by implementing subdomains and using wildcard SSL certificates.

In my case, ReadyPrompt is my umbrella company. It's registered as my business name, so all profits and losses are recorded in aggregate and taxes and expenses are paid using funds from the ReadyPrompt bank account. It makes it much easier than declaring multiple businesses and having multiple accounts. It also makes it easier to shut down an underperforming service without the need to report it in any special way.

Update March 29, 2010: I received a few questions via email from a reader considering merging their sites under an umbrella. Here was my response:

I'm glad you're using a business and tax lawyer before you undertake this action. It's the prudent way to go, and I'm definitely not as versed as they are. The reasons I decided to put my sites and business under the same roof was out of simplicity. Relieves the need for multiple bank accounts and simplifies taxes. I felt it was right for me since I'm a sole proprietor and simplifies my management of it. An important question you'll want to ask your advisor is: what do I do when I decide to sell a part of the company? If you have 3 "properties" (sites or sub-businesses) and you want to sell one of them, there may be problems.

Considerations for sale of subcompany Y:

  • if Y is using a subdomain of your main company ( instead of their own discrete name:, since web traffic and pagerank will be tied to the subdomain version (or not depending on your server setup)
  • if your businesses share the same bank account and all those transactions are intermingled
  • if you share employees between the them: James does tech support for X and Y (does James leave along with Y?)

This is causing me to rethink a few things. Looks like I need to update the post for these sale considerations. Not a deal-breaker, just a more focused way of making separations between entities but still taking advantage of economies of scale.

Photo courtesy Metro Centric CC BY 2.0

Next post: securing startup funding from friends and family

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