A holding company, also known as a parent or umbrella company, is a vital legal structure for business owners looking to protect subsidiaries’ assets and limit liability risks. In addition to owning other business entities, holding companies may also own assets like stock and securities, patents, trademarks, copyrights, and real estate.
With the help of legal and tax professionals, business owners can make informed decisions about structuring multiple businesses. Each subsidiary under a holding company functions as its own separate legal entity, allowing the holding company to protect each subsidiary from the legal claims and debts of the other subsidiaries.
Forming a holding company offers multiple advantages, including lessened liability, easier investor attraction, and optimized tax efficiency. As to the entity type best suited for a holding company, there are important considerations to be made between forming a C Corporation and forming a limited liability company.
A C Corporation offers personal liability protection and allows for raising capital by issuing or selling stock, but comes with more extensive compliance formalities and may be subject to double taxation. On the other hand, a limited liability company protects its owners from personal liability and has less compliance requirements, but may not have as many tax deductions and cannot issue stock to raise capital.
When moving existing LLCs or corporations under a holding company, the specific procedures outlined in the bylaws or operating agreement should be followed.
By understanding the advantages and drawbacks of each entity type and seeking professional guidance, business owners can make informed decisions about structuring multiple businesses under a holding company.