A holding company provides benefits which are impossible to provide via a single businesss entity. Holding companies are created the same way other companies are. Instead of engaging in operations, they merely own and control other companies and assets however. The company can engage in operations via subsidiaries or sister companies if needed. Assets may also be loaned or leased to third parties. The intent is to isolate liabilities, provide anonymity where possible and minimize taxes.
Some effort is required to set up the structure. The resulting benefits more than pay for themselves though. While Corporations and LLCs may both be used, this page focuses on Wyoming limited liability companies because of their superior asset protection benefits.
Who uses holding companies?
Holding Company Benefits
Why a Wyoming Holding Company?
Holding companies have flexibility in where they domicile. This is because simply holding assets and leasing them is not generally considered transacting business (more in the next section).
A Wyoming or Nevada LLC may thus own a Florida condo without registering as a foreign entity.
The question is what state is best for your parent company? Common choices are Wyoming, Nevada, Delaware and New Mexico:
Every investor is different. However, the asset protection and low fees make doing business in Wyoming the frequent choice. Delaware is suitable for large corporations and New Mexico for those just needing anonymity and no asset protection. Nevada, frankly, is no longer a great choice due to their significant fees. Find a fuller comparison of WY, Nevada, New Mexico and Delaware companies here.
The operating company may by necessity need to file in a state other than the one you chose above. For example, property management will require registering in the state you are managing properties. The real estate may be held in a foreign LLC, but you will need a local one for handling the property.
This does not apply to all industries. E-commerce companies may domicile all their subsidiaries in Wyoming since they are not transacting business in any other state.
Registering As a Foreign Entity
Sometimes registering is inevitable. In such cases you should run your operations via that company to the fullest extent possible while simultaneously avoiding holding assets inside of it. This isolates operational risks from valuable assets.
This operating company will lease assets as necessary to perform its function. If privacy is important, then you have a few options. In Florida, for example, you may list the owner of one company as an out of state entity. In this case you would list the Wyoming company - effectively making the Florida LLC anonymous. Other states may require a name or signature. In such cases you may use our nominee services to sign public forms. You may learn more about anonymous Wyoming LLCs and their privacy here.
Sister-Sister vs. Parent-Child Structure
Holding structures are typically set up either with either a parent company and children, or sibling entities. To make the discussion easier, here is a graphic of a sibling set up. In this case the Holding Company holds assets via a series LLC (or traditional subsidiaries) and an operational company handles tenants, vendors, contractors, inspections, loans and the public at large:
This is an image of a parent-child set up. Here a parent company oversees children companies which engage in operations. The parent company often has a management contract. Through this and other devices income is shifted to where it is not taxed. Cash is also flowed up the parent company for safekeeping:
In other states the sibling model can be better. This is because in the parent child each subsidiary is technically a single member LLC. If you are in a state which does not protect such companies, then you are vulnerable to creditor claims. In Wyoming, single member limited liability companies receive all the same benefits as multi-member companies. This means you may choose whichever structure makes the most sense for your situation, neither is inherently better.
Real Estate Investment Holding Company
Real estate easily lends itself to the holding company model. There are valuable assets and operational risks. These are easily separated by owning the real estate in a separate company. Business risks aside, you may also have personal liabilities which could endanger your properties. For example a car accident.
Owning real estate in non-anonymous LLCs means the public can see what you own. This places you at increased risk of a frivolous lawsuit. Plus, if you hold all your properties in one entity, then everything is at risk in case of an accident.
The first step is to create an anonymous company. This protects you from prying eyes. The next step is a separate Limited Liability Company for managing properties. This company is in charge of maintenance and handles contracts, tenants and contractors. Those desiring additional protections should consider equity stripping or forming a Wyoming asset protection trust.
E-Commerce Holding Company
E-commerce companies favor Wyoming due to the anonymity and asset protection. Different product lines can be split between entities. Clients also often form multiple entities to compete in the same space. Their competitors cannot tell however.
Splitting up product lines is better for risk management and for spinning off successful products. Candles are inherently risky, for example, so you would not want that to risk your graphic t-shirt line. Maintaing separate accounts also makes it easier to justify valuations because your books are clean.
An asset protection trust is a time tested method for deterring creditors. Wyoming trusts directly compete with traditional offshore havens such as the Cook Islands and Nevis. Credit protection begins immediately and there are shortened windows for contesting transfers. Trusts separate the ownership and economic benefits of an asset. The trust owns the asset, thus it cannot be taken from you. While you do not own the assets you may still benefit from them. Learn more here about Wyoming's asset protection trust.
The benefits of a holding company structure exceed the time and cost of implementing it. Whether your motivation is asset protection, privacy, taxes or all three, then a Wyoming holding company may be for you. Learn more about our Wyoming LLCs here and please contact us today if you have any questions.
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