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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