Do you need separate entity for monitoring June 15, 2023

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Do you need separate entity for monitoring
June 15, 2023
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Do you need separate entity for monitoring
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Ken,
          I've been considering opening up another LLC and sell my monitoring accounts to said LLC . That way some litigation happy person couldn't get to my most valuable asset, my accounts. If they were to come after my "Installing" company that was separate from my "monitoring" company would my accounts be safe?
          Thanks in advance for your response.
Barry

Response
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          There could be good reasons for having more than one entity.  It may involve complex corporate and tax issues.  I seriously doubt that most of you, other than the public companies, would benefit by separating your monitoring operation from your other alarm business, defined above as the installing end of the operation.
          At least two issues come to mind that militate against bothering with the two entities.
          First, you need to be realistic about whether you are really operating two entities or whether the only person you’re fooling [and inconveniencing] is yourself.  If your concern is liability of one entity for the other then you need to be mindful of the debtor-creditor remedy of “piercing the corporate veil” which permits a creditor to disregard the corporate structure and treat the two [or more] entities as one.  Separate entities need to be separate in all ways, not just in name.  Separate entities don’t share the same owners, phone number, space, employees, professionals, insurance policies, bank account, co-mingle or transfer their assets to each other, etc.  You’d be wise to treat the other entity as owned by a stranger who you didn’t like or trust, in which event you wouldn’t be sharing any of the items mentioned above.  So having the two entities may not accomplish shielding the claims of one entity from the assets of the other, which was your primary goal.
          Second, I think you may have missed another important factor, which is that your monitoring operation is probably where most of the risk is and also where most of the assets are.  Your monitoring contracts with RMR are your most valuable asset, especially if you use Standard Form Agreements.  Your installing side of the operation is of little value unless you operate an alarm company that, uniquely, has value in its continued sale and installation operation.  When you create equity to sell you need the RMR and monitoring is the most valuable RMR, though not the only RMR [repair plan and inspection].  The above question seems to think you need to shield the installing side of the business from the monitoring side; seems to me that if anything it would be the reverse.
          I am thinking about an alarm operation where you sell and install the system and then sell the account to a dealer program.  In that case you get your money and don’t have monitoring revenue.  In that situation two entities aren’t needed because you don’t have a build-up of monitoring accounts as an asset.
          General rule, one entity is sufficient for your alarm business.  If you do other kinds of business then those operations may, if genuinely run independently, can be other owned by other entities.  This would include home automation and entertainment, other than security, and fire protection work [as opposed to alarms] and guard service.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com