What Is a Holding Company?
A holding company is a business entity—usually a corporation or limited liability company (LLC). Typically, a holding company doesn’t manufacture anything, sell any products or services, or conduct any other business operations. Rather, holding companies hold the controlling stock in other companies.
Although a holding company owns the assets of other companies, it often maintains only oversight capacities. So while it may oversee the company's management decisions, it does not actively participate in running a business's day-to-day operations of these subsidiaries.
Some of the most widely known holding companies include: World Disney Company; Comcast Corporation’ Bank of America’ Johnson & Johnson; JP Morgan Chase’; American Express Company; Macy’s; and XXVI Holdings Inc. Check Out Warren Buffet's empire Berkshire Hathaway. Berkshire Hathaway had a market capitalization of about $560 billion, making it one of the largest publicly traded companies worldwide.
Benefits of Holding Companies
Holding companies enjoy the benefit of protection from losses. If a subsidiary company goes bankrupt, the holding company may experience a capital loss and a decline in net worth. However, the bankrupt company’s creditors cannot legally pursue the holding company for remuneration. Holding company or Series LLC business structures are very common for real estate investors. Holding Companies also have accounting, tax planning, financial planning, controlling interest, and estate planning benefits.
HOLDING COMPANY STRUCTURE
A holding company structure may be created through a C Corporation structure or through a Limited Liability Company (“LLC”) structure. Whether to use a Florida LLC or a Corporation it depends on many factors. Your attorney must weight the pro and cons specially as it relates to complexity, asset protection, etc.
Forming a holding company does not make sense in every situation. Specially if the cost of up-keep far outweighs its benefits. Both the holding company and the subsidiaries will have to maintain proper business records and abide by state law when it comes to all the company formalities as with any other business structures. For this reason, you should not attempt to form this structure on your own and contact a professional such as an asset protection lawyer or tax attorney. A business must meet corporate compliance in the state of formation, or they will not have the protection from liability.
To consult with a business lawyer on how to establish a holding company or if establishing one benefits you, sign up for a legal plan and get legal consultation without having to pay hundreds per hour.
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