When to open a holding company
How to form a Holding company | Illustration
how to form a holding company holding
companies are formed to organize and
manage a group of smaller companies if
you are a business owner of investor you
may consider forming a holding company
to protect your business assets or get a
more favorable tax rate creating your
holding and operating companies
assess your business needs a holding
company is an incorporated business that
holds investments in other companies
called operating companies the holding
company does not perform any business
activities other than borrowing lending
and making investment decisions
however the holding company loans funds
or leases assets to an operating company
that performs any kind of business
activities the two most common benefits
of a holding company are tax reduction
and asset protection a holding company
may provide a reduced tax rate by
incorporating in a state with a more
favorable tax structure or it may
protect company assets from loss to
creditors of the operating company
before forming a holding company you
should consider your business needs and
the benefits you want to achieve a
famous holding company in the u.s. is
Warren Buffett's Berkshire Hathaway
Berkshire Hathaway is a holding company
that lends to and invests in operating
companies including Geico and coke the
holding company can borrow and lower
rates than other businesses because it
has ownership in such a diverse group of
businesses at the same time the business
profits greatly from the increase in the
stock value of businesses it invests in
a holding company may also be suited for
the owner of a small business as the
holding company can provide asset
protection for the high-value assets of
the operating company in this way by
forming a holding and operating company
a single person can protect both their
personal and business high-value assets
from creditors of the operations of the
business
determine your business structure there
are two predominant forms for a holding
company the corporation in the limited
liability company or LLC you should
determine which form fits your needs as
the form you choose may affect your
taxes and liability most small business
owners choose to form an LLC holding
company as the corporation structure
generally do not provide the same asset
protection consider what type of company
you already have if any and what form of
holding an Operations company will suit
your needs if you are seeking a more
favorable tax structure you may consider
forming your holding company in a
separate state than the operating
company you should consult a business
attorney for help setting up a company
in another state to maximize asset
protection you can form two LLC's one
holding and one operating company you
must create a separate entity for each
but the agent for each can be the same
person you as long as you maintain the
holding and operating companies as
separate legal entities the holding
company will not be liable for debts of
the operating company if you are seeking
a more favorable tax structure you may
consider forming your holding company in
a separate state than the operating
company you should consult a business
attorney for help setting up a company
in another state to maximize asset
protection you can form two LLC's one
holding and one operating company you
must create a separate entity for each
but the agent for each can be the same
person you as long as you maintain the
holding and operating companies as
separate legal entities the holding
company will not be liable for debts of
the operating company
file a business application you will
form your holding company according to
the state laws and the type of business
you want to form whether you form an LLC
or corporation you will need to file
registration with the state by giving
the name of the business the name of the
business agent in the Articles of
Incorporation for your company you
should do this for your operating
company as well as your holding company
if your operating company is not already
incorporated your articles of
incorporation should state the purpose
of your company and its objective the
names of the officers of the company and
how business decisions will be made
update the articles of incorporation as
you make business changes
create a bank account specific to your
holding company to maintain independence
as separate companies the holding
company and the operating company must
maintain separate bank accounts and
accounting records you should open a
business account specific to your
holding company by providing your new
company tax ID when you create the
account deposit all of the funds you
will use to
fund the holding company to start using
the holding company you should fund the
company to start investing in the
operating company the wealth of your
companies should be stored in the
holding company and you can loan money
to the operating company to fund
operations as needed if your operating
company was already started before the
holding company start by selling all of
the valuable assets of the operating
company such as land buildings large
equipment intellectual property etc to
the holding company by filing a transfer
of assets
keep accounting records for your
transactions as you operate you're
operating and holding companies maintain
accurate accounting records of the
transactions that take place between
your businesses separate accounting
records are critical to maintaining
legal distinction between the entities
the holding company must claim income
for amounted earns from the holding
company in lease or rent revenue so much
as that amount exceeds the expense of
owning the asset you should keep records
so that at the end of the year you can
account for all transfers that took
place between your holding and operating
companies
