By Mark Pierce, Esq.
- Can A Holding Company Be an LLC?
Can a Holding Company Be an LLC?
Summary
A holding company can indeed be an LLC, with benefits including privacy, asset protection, and lower taxes. Wyoming is a recommended state for forming such an LLC due to its favorable laws. An LLC is often preferable due to flexibility and protection from personal creditors.
What Is a Holding Company?
A holding company can be an LLC. A holding company is simply a business entity that owns other business entities (subsidiaries) and valuable assets. This means that the formation process for a holding company is the same as that of any other company. These assets may include intellectual property, equipment, or real estate. The holding entity does not engage in any business of its own. Rather, subsidiaries engage in risky operations so the holding LLC remains beyond the reach of creditors.
A single-member LLC may be a holding company and an LLC holding company may even be owned by a trust. This provides additional asset protection and may be used as the basis for an estate plan if so desired. Holding companies make managing disparate business interests easier and may act as a personal bank if needed. They take on many names, e.g. investment, property, asset, private and real estate holding companies.
What Is an LLC?
A limited liability company is a newer entity type than the Corporation. Wyoming was the first state to allow them. Now all 50 states do and other countries have their own formulations. They are popular because they are simpler to manage than Corporations and are generally more flexible. This flexibility has led the Limited Liability Company to become more popular than the Corporation for new formations.
Choosing a State to Register an LLC
Every state writes its own corporate laws and LLC acts. However, only a few jurisdictions compete for business in the way Wyoming, Nevada and Delaware do. Each of these states has crafted LLC and Corporate laws designed to attract business. Setting up a holding company in one of these states helps you benefit from their desirable laws.
Only one state has specific statutes protecting single-member LLCs, however. This is important because every subsidiary will technically have one member - its holding company. The Wyoming legislature enshrined these protections in law to ensure no court invalidates them. No other state provides these protections, nor our anonymity and low fees. For this reason, Wyoming is the best state to set up an LLC for your holding company.
Holding Company LLC Advantages
Setting up a holding company can help lower your taxes, protect assets, and protect your identity. These are important applications, so we will take them one by one:
1) Protect Your Identity: Wyoming LLCs allow anonymous ownership. This means your name, address and other information remain private. Other states disclose beneficial owners, but Wyoming does not. This entity may even be listed as the member or manager of an LLC in a different state. For example, listing an anonymous LLC as the owner of a Florida LLC makes the Florida LLC anonymous.
2) Protect Your Assets: Placing assets in a holding company puts them beyond the reach of operational creditors. This means, for example, a slip and a fall at a rental property won't jeopardize the property itself. Nor will a contract dispute threaten a patent.
3) Lower Taxes: Wyoming has no corporate or personal income taxes. There are no tax returns to file. Shifting income to Wyoming, where there are no state taxes, can significantly reduce your annual tax rate.
Learn more about holding company benefits here.
Parting Thoughts
An LLC most certainly can be a holding company. In fact, in most cases, the limited liability company is the most desirable business entity. This is due to their flexibility, pass-through tax status, and strong protections from personal creditors.
Frequently Asked Questions
An LLC is generally superior to a Corporation for a personal holding company. This is due to their relative simplicity, privacy, and asset protection. A corporate tax election can be made if needed to obtain the benefits of an LLC and a Corporation.
Any LLC can be a holding company. It's not formed differently, but operated differently in that it’s solely used to hold investments, but not engage in operations.
A personal holding company is an LLC or Corporation designed to manage personal investments, which can be as narrow as only real estate or include a variety of asset classes such as equities, crypto, gold, etc.
An individual can, and often should, have a holding company. This company may then direct in investments with others, or solely for the purpose of the single individual.