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How to Set Up
a Holding Company

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Registering The Company

mark pierce

Setting up a holding company is not much different than any other company. You first select the appropriate structure for your business. The trend has turned toward Limited Liability Companies over Corporations due to their ease of management, tax flexibility and better asset protection.

Yes, an LLC can be a holding company. It may be used to hold a variety of assets, such as real estate, intellectual property and other investments. An LLC may also be owned by a trust.

Additionally, due to holding companies not being engaged in operations, there is flexibility in choosing where to domicile the company. This is why so many companies are set up in Wyoming, Delaware, Nevada or New Mexico, even though comparatively few people live in those jurisdictions.

8 Steps to Set Up a Holding Company:

  1. Choose a State, e.g. WY or DE
  2. Choose an LLC or Corporation
  3. Pick a Name
  4. File Articles
  5. Draft & Sign Agreements
  6. Open a Bank Account
  7. Create Operating Companies
  8. Maintain Corporate Records

LLCs have better asset protection, are simpler in terms of management, have reduced compliance regulations, and let you avoid double-taxation thanks to pass-through taxation. Corporations stand out with their perceived greater prestige (which is changing), the built-in management for re-investmenting, and the fact that a legal precedent for them has been around for a long time. Before deciding how to set up your holding company you should consider the relative asset protection, tax and privacy benefits available between states.

Naming a Holding Company

We often joke choosing a holding company's name is the hardest part. While other factors can be reasonably weighed and measured, a name usually just strikes you. We recommend a name that is meaningful to you, but which does not get rid of your privacy. Calling a company "Your Last Name Enterprises, LLC" may be convenient, but does not afford you any privacy.

Legally, you have to include the appropriate entity identifier in your name. This would be LLC in the case of a limited liability company, or Corp/Inc. in the case of a corporation. Note, Wyoming does not require Inc. or Corp for corporations. Additionally, you must confirm that the Secretary of State does not already have a registered business with the name you want. Wyoming offers a simple name search for businesses so you can check this in minutes online. We also do it for free for you, and allow you to enter an alternative name in case the first isn't available.

Write the Operating Agreement or Bylaws

The next step is to draft your governing documents. Wyoming does not require these, but we strongly encourage you to complete and sign them. All owners, managers and officers should do so. This helps ensure the rules you set are in fact followed. For an LLC there is the operating agreement and bylaws are for a Corporation. The governing document should address your company’s ownership as well as its management.

We provide these documents free of charge, already completed with your company's information. They are provided as a Microsoft Word document so you can make any edits you like, or simply print and sign. Although these documents contain all your personal information, they remain internal; there is no requirement to file them. This is what keeps your LLC or Corporation anonymous in Wyoming.

Ownership Within the Documents

One of the key aspects of a governing document is the outlining of the ownership of the company. For Wyoming LLCs, that information would include the percentage of ownership that every member receives in addition to what they contribute to receive that percentage. In most cases, the ownership percentage relates to the original contribution’s value. In the case of Wyoming Corporations, the relevant part of the governing documents will outline the initial contributions of stockholders in addition to the stock quantities they receive.

This portion of the governing document should also feature any regulations or rules related to changes in ownership. This should include the process by which current owners would be able to sell out of the company and the process by which new shareholders or members could buy into it.

Management Within the Documents

As mentioned, the other aspect of the governing documents regards management. LLCs may be manager-managed or member-managed. The structure you choose should be clearly outlined in the Operating Agreement. This should also include the responsibilities and rights of managers and members.

For Corporations, this document will set up the Board of Directors that begin the governing. It will also appoint the corporate officers, including President, Treasurer, Secretary, and others. The Corporate Bylaws should include specific responsibilities and the duties of each position, as this eliminates potential confusion in the future.

File Your Articles

The next step to register a holding is to file your formation articles with the Secretary of State. For Wyoming LLCs, Articles of Organization act as the formation document, while Wyoming Corporations use Articles of Incorporation. The filing fee is $100 for processing by mail or $102 if you file online. The Secretary of State filing fee is included in our $199 formation service. There are no business licenses or other fees due the first year. There is only a $50 annual report due the second year.

You can complete this filing process yourself using the various resources available online. Or, you can utilize a filing service to make the process go more smoothly. Under Wyoming law, you must appoint a registered agent in the state as part of the Articles. This agent accepts notices of lawsuits and similar processes for the company.

The Secretary of State asks for the name of the filer. For an LLC this is the Organizer and for a Corp this is the Incorporator. To maintain your privacy we recommend you have us set up your company. The online filing fee is $102 and our agent fee is $49. This means you will only pay $48 more than if you do it yourself (plus we providing governing documents).

Apply for the EIN

The IRS issues your Employer Identification Number, known as EIN, FEIN, Federal EIN, Employer ID or Taxpayer ID. The EIN is used on federal taxes for identifying your company. While all corporations need an EIN, certain LLCs may have an exemption for some Single Member LLCs. However, we still advise obtaining an EIN so you may keep the company's finances separate from your own. With no EIN, and thus no separate bank account, it's difficult to argue you obeyed corporate formalities and deserve the benefit of the law in case of a lawsuit or other negative credit event. Any company with employees that files certain tax returns, has Keogh plans, is involved with trusts, real-estate and mortgage investments, estates, farmer’s cooperatives, non-profits, or plan administrators, or has multiple owners needs an Employer Identification Number.

Open a Bank Account

It is fairly easy to open a business bank account. You will need to show the bank your Articles of Incorporation or Organization, the Corporate Bylaws or Operating Agreement, EIN, and the initial resolution that authorizes account openings. We provide all of these, save the EIN, as part of our standard $199 package. You may obtain the EIN yourself or select the choice on our order form.

Get the Business License

Wyoming has no required business license, unlike Nevada which charges hundreds of dollars for essentially nothing. Some protected industries will require a license, though. This step is required for those with business related to wildlife, transportation, insurance, fire prevention, electricity, banking, and food. Specific other professions also require licensing, including medicine, law, barber shops, athletic training, and more.

The above protected industries will often be handled via the subsidiaries or children companies. It is then those companies that must obtain the required licenses. The holding company will not engage in such operations and thus does not need to file.

Setting Up Subsidiaries

It is generally easiest to set up a holding company first, and the subsidiaries or children second. You will list the owner of the subsidiaries as the holding company so the initial documents can be drafted correctly. If you already have existing companies and want to move them under your parent company, then you will need to change the operating agreement or bylaws of the company beneath to reflect the new owner.

After creating a holding company and subsidiaries, the next step is to move your assets around and decide how to structure your operations. We hope to have an article detailing these steps coming soon.

Any Questions?

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Call: 307-206-8540

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info@cloudpeaklaw.com

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Cloud Peak Law Group, P.C.
1309 Coffeen Ave Sheridan, WY 82801