5 Million Dollar Lemonade

A 2 Billion Dollar Tire and 5 Million Dollar Lemonade

In 1930 two men were on a train, playing a game of bridge. Robert was the CEO of a big company and Carl did insurance. They were both friends and neighbors and trusted each other. During a lull in the game, Carl shared a simple business concept. They could drastically reduce cost by establishing their own insurance company. Robert saw the wisdom in this but the question was, what do we name it? Robert’s company was Sears and Roebuck and Sears well they sold a lot of tires. So they named it after their best selling tire, Allstate. Yes, that Allstate. Since its launch on April 17th 1931, that captive insurance company has done more than cut cost. (source 1) Wealth was created. Allstate had a net income of $2.1 billion in 2015. (source 2)

If any part of you wishes you could have been on that train and been part of that deal your not alone. Now, most of the fortune 500 have set up these companies we call “captives”. Each has a customized structure to serve the needs of their parent company. Naturally, Google’s is set up differently from Coca Cola’s.

There’s even a special section of the IRS code dedicated to spelling out how these captives can receive up to 1.2 million free from income tax which will increase to 2.2 million free from income tax in 2017. IRS Code 831(b)

5 Million Dollar Lemonade? So when life gives you lemons like taxes and insurance premiums, why not make lemonade? I’m here to tell you that this concept is not just for the Fortune 500 anymore. If your company has 5 million dollars or more in revenue then its worth 20 minutes to learn more.