Holding companies are formed for risk-management, tax avoidance, privacy and investment flexibility. The most famous holding company is Berkshire Hathaway. These benefits arise through the creation of multiple entities. A traditional single-corporation setup isolates business liabilities from personal assets.
However, it does not separate business assets from liabilities. Nor does it allow for income shifting between corporations to the one which faces a lower tax burden. This is where structuring with multiple entities comes in.
This setup offers the following benefits:
Risk Management: Assets and liabilities are separated. Lawsuits, creditors and other liabilities do not spread from operational companies to valuable assets.
Tax-Management: Through various means revenue and income are shifted away from high-tax jurisdictions.
Privacy: Wyoming allows the anonymous ownership of companies. This benefit can be used to shield your identity in other states and countries as well.
Flexibility: The ability to pool resources across companies and invest in separate enterprises is made easier.
Holding companies and the related Double LLC are paradigmatic examples of corporate structuring. A traditional holding company engages in no business activities of its own. Rather, it wholly owns subsidiaries which engage in operations. The holding corp usually owns cash and assets such as trademarks. This prevents operational errors from leading to asset seizures.
These assets are then loaned or leased back to the subsidiaries. We recommend domiciling in Wyoming because it has no state taxes. Risky assets are further segregated into their own corporations. This means even if one asset is liable for a debt it does not spread to other assets.
Here are the steps required and things to keep in mind when setting up your own holding corp or multiple llc structure.
Our Holding/Double LLC package is $599. They include two corporations/LLCs, half an hour of attorney time, custom drafted documents, assistance obtaining your EINs and a discount on our virtual office service. After speaking with us you will have the foundation necessary to begin doing business, while avoiding frivolous liabilities and taxes without having to worry about an office.
Here is a more complete discussion of the benefits you may reasonable expect. Each description comes with an example of the difference to expect from operating with a single entity.
Asset Protection & Risk Management
For legal purposes, a corporation and its owners or members are separate persons. A corporation is a corporation is a corporation. The debts and assets of a company are its and its alone. This means a company’s assets are safe from an owner’s liabilities. The opposite also holds true for Wyoming companies because of their unique charging order protection.
Company assets are not safe from company liabilities however. This is where the second entity comes in. Through proper structuring, liabilities are separated from assets and assets are categorized according to their risk profile.
Holding companies avoid taxes in several ways. The most obvious is through tax-free dividends. When a company owns 80% or more of another company any dividends paid are free from taxation.
are often domiciled in low tax jurisdictions. This is because their activities are passive and easy to allocate to where they are taxed least. This template can be applied to most industries. The goal is to move revenue to low-tax jurisdictions and expenses to higher tax areas.
For example, consider a concierge pet service company in Virginia. It has a valuable brand and pays for pet supplies. The trademark able brand name can be domiciled in WY with the VA company paying royalties. The second company in Wyoming can also purchase all pet supplies at wholesale prices and sell them at retail prices to the VA company.
This concept can be extended to international companies if you live overseas or have an international supply chain. Various offshore domiciles, for example Nevis, offer no taxes and little oversight.
Wyoming is one of four states which allow the anonymous ownership of LLCs. We also allow corporations to use nominee officers. Most other states allow the owners, managers, shareholders and officers on record to be other companies. This creates an opportunity to leverage the advantages of one of the above LLCs or Corporations.
For example, you may anonymously form an LLC or C-Corp in Wyoming. You may then use this privately held company to act as the public face in other jurisdictions. For example, your business can be the officer for a Florida corporation. Learn more about LLC privacy here and c-corporation privacy here.
Your Wyoming LLC can be used as a vehicle for investing in other companies. Your earnings will accrue free from state taxes while enjoying the nation’s best asset protection features.
You may also use the company to establish a self directed or solo 401k LLC. Essentially, you form a retirement plan for your own benefit. You then use that fund to invest in your LLC. That LLC is free to invest as it wishes. The contribution is tax deductible and the earnings compound tax free. Learn more about the unique benefits of a Self-Directed/Solo 401(k) LLC here.
Form an asset protection trust for your most valuable assets. Protect yourself from zealous creditors, fortune hunters and bad luck.
Separate assets and liabilities with multiple structures. Necessary for companies in risk prone industries or with significant assets. Includes attorney time and more. Consider it a one-time insurance payment.