For purposes of limiting liability and asset protection, you don't want to keep excess capital in your corporation. For instance, If your company made $200,000 in profit last year, you don't want to lose that money because the business went bankrupt this year.
But at the same time, you may not want to receive $200,000 in income right away. Perhaps you may want to reinvest this money in the business soon or use it to set up a retirement fund for yourself within the company. Either way, you don't want to pay personal income tax on all of that money right now.
When faced with the problem of not wanting to keep money in your business or to declare it as income, one of the best solutions is to form a holding company.
What is Holding Company?
A holding company is a company that is primarily used to own real estate or companies. In other words, it is simply a legal entity created to own assets and businesses.
A holding company doesn't conduct business as usual. In fact, it typically doesn't have any business activities and no real business operations at all.
The businesses held by your holding company are referred to as operating companies and both generate profit and assume liability. The holding company, on the other hand, holds on to capital, but doesn't assume any liability.
Holding companies are often used to limit liability, protect assets, structure income, and reduce or defer taxes. They are very popular with business owners and real estate investors because they offer a number of important benefits:
A holding company is perfect for entrepreneurs and small business owners because it eliminates liability for both business and personal debts. This is primarily because, in most cases, the liabilities of the operating cannot be passed on to the holding company or its owners.
A holding company is also a very popular entity for real estate investors because properties managed in this manner gives limited liability to the owner(s). If the property were to ever be involved in a lawsuit, the lawsuit will not affect the other properties owned by the holding company.
Holding companies can safeguard corporate assets as they allow for the tax-free payment of dividends. When the holding company controls 80% or more of its operating company's voting stock, it can take advantage of tax consolidation benefits, essentially meaning that it qualifies to receive tax-free dividends from the operating company.
A holding company can be an easy way to split income between multiple shareholders. For example, by making your family members shareholders of your holding company, you can split income by distributing dividends to them.
Another reason why a holding company is popular with business owners and investors is the anonymity that comes along with it. While it is easy to create an anonymous LLC giving its owner privacy from public view, having this double layer of protection is a very safe way to ensure that no one can come after your home and your other valuable personal assets.
The "holding company - operating company" arrangement is useful if you want to share assets. If you have a few expensive assets that multiple businesses share, you can have those assets be owned by your holding company and then rent them to your various operating companies.
In addition, holding companies can be great tools to assist with:
Consult With an Experienced Wyoming Business Law Attorney
As a business owner, you should ideally take advantage of every available opportunity to avoid taxes and protect your assets, and a holding company can help you achieve this objective. When it comes to minimizing taxes and asset protection for your business in Wyoming, an experienced Wyoming business law attorney can help figure out if a holding company is appropriate for your company.