The holding company definition is "a business entity that exists to own other companies." A holding company maintains oversight of the companies and/or assets it owns, but it doesn't participate in its day-to-day operations.
What Is the Purpose of a Holding Company?
The purpose of a holding company is to offer liability protection for those who own multiple businesses and lower debt financing costs.
What Does the Term "Holdings" Mean?
When someone refers to a holding, the legal definition is any type of property owned by another. Holdings can include a business, stocks, land, or other financial assets.
Is a Holding Company a Good Idea?
For many business owners, a holding company is a good idea, as it can have some significant benefits. This is especially true for those who own or want to own more than one business. You'll need to weigh the pros and cons to decide if forming a holding company is the right move for you.
What Are the Advantages and Disadvantages of a Holding Company?
The advantages of a holding company include:
- Reduced legal risk
- Potential for dividends to be tax-free
- Centralized authority and decision-making
- Ability to make capital purchases in bulk and get better terms for financing
- Diversification of financial risk
Some of the disadvantages of forming a holding company include:
- Potential for competition between owned entities
- Increased distance between ownership and the market
- Decreased liquidity
- Possibility of antitrust issues
How Does a Holding Company Make Money?
There are two major sources of revenue for holding companies. One major source of revenue is regular dividends from the companies they have a stake in. The other source of revenue is intangible corporate assets such as patents and copyrights, for which other companies may need to pay royalties to the holding company.
What Is the Difference Between a Holding Company and a Corporation?
There may or may not be any difference between a holding company and a corporation. A corporation is a type of business entity, and quite a few holding companies are corporations. But holding companies can also be LLCs, another type of business that does not have shareholders.
What Is the Difference Between a Holding Company and an LLC?
There may be no difference between a holding company and an LLC, as you can consolidate your holdings in an LLC. An LLC holding company structure will consist of one or more members who manage the operations of the company, without having shareholders to report to.
Should a Holding Company Be an LLC or a Corporation?
A holding company can be either a corporation or an LLC, depending on your preference, as both offer protection from personal liability. However, an LLC holding company will have less stringent reporting and record-keeping requirements than a corporation. On the other hand, if you plan to take your holding company public at some point, you won't want to make your holding company an LLC.
What Are the Types of Holding Companies?
Types of holding companies include:
- Pure holding companies, which only exist to own controlling stakes in their subsidiaries
- Intermediate holding companies, which own other companies but are also owned by a holding company
- Mixed holding companies, which are a hybrid of a holding company and a regular company: A mixed holding company does operate its own business, selling goods or services, while also owning one or more other companies.
How Do You Structure a Holding Company?
The typical holding company structure involves creating a parent company at the top to hold all of the assets of the subsidiaries. The corporation or LLC holding company structure will then include multiple subsidiary businesses.
Can One Person Own a Holding Company?
Yes: One person can form and own a holding company.
When Should You Start a Holding Company?
Creating a holding company can happen at any time, whenever you feel like you want to make this move. It's an especially good time to do so if you plan to start a second business soon or if you need to better protect your assets.
What Are the Tax Advantages of a Holding Company?
LLC holding company taxes can be lower because the losses of one subsidiary can offset the profits of another. Another major advantage is that the dividends paid to the holding company do not create a tax liability like they would if the dividends were paid to an individual.
Do Holding Companies Have Financial Statements?
A private holding company is not required to have publicly accessible financial statements. However, a holding corporation that has shareholders must file periodic financial statements with the Securities and Exchange Commission.
Does a Holding Company Protect Assets?
Yes: A holding company is able to protect assets because it usually doesn't conduct business activities, so there is limited exposure to liability.
Can a Holding Company Have Employees?
Yes. A business holding company will have at least one employee because someone needs to perform the functions of running the company, including signing documents, making decisions, and overseeing the management of its subsidiaries.
Get Help With Your Business Structure in Wyoming Today
At Cloud Peak Law Group, we can help you to form any type of company, whether it's an LLC or a corporation. If you're interested in setting up a holding company or any other sort of business in Wyoming, contact us today to see what we can do for you. We make it easy to start a business!
Frequently Asked Questions
A holding company is designed to hold assets including, but not limited to, other companies, real estate, crypto, bonds and alternative investments. It should not manage assets or employ people as those bring liability.
Holding company examples include Nestle, Berkshire Hathaway, JP Morgan, Alphabet (which owns Google), and even many national registerd agents which have subsidiaries in various states.
A holding company can make money via its subsidiaries, income from assets, royalties, or leasing/loaning assets to 3rd parties or subsidiaries as desired.
A holding company can be an LLC and vice-versa. Traditionally small investors use LLCs, whereas large companies use Corporations as holding companies.