Are you the owner of many companies and want to explore the possibility of creating a holding company for them? By creating a holding company, you’ll have liability protection. Plus, you’ll be able to control your assets with less expenditure. Furthermore, you can low your financing costs and reduce your tax bills.
So let’s look a little deeper into how you can start a holding company in 2021. We’ll explain five tips you should be aware of. But first, let’s establish what a holding company’s purpose is.
What Is a Holding Company?
The goal of a holding company is to provide a mechanism for persons who own multiple enterprises. They help you to streamline your management, limit your liability and retain ownership of each business. The idea is you gain a centralized control point for your various enterprises. A holding company is a corporation or limited liability company that has a controlling stake in the ownership or assets of other businesses. It is not directly involved in business activities.
Instead, the holding company will often hold ownership assets or interests. A parent company is another name for a holding corporation. A subsidiary or operating company operates under the parent corporation.
Now that’s clear, let’s check out the five tips.
Outline Your Business Needs
Most business owners form a holding company to take advantage of specific benefits it can offer. Before you form your holding company, try to figure out your business’s needs and how a holding company can help them.
If, for example, you want to set up a real estate holding company, your business needs might be different from other types. For example, your holding company can offer a lower tax rate if you establish it in a state with a more favorable tax structure. Or it can shield your companies’ assets from the operating company’s creditors.
Decide Your Holding Company Structure
The corporation and the Limited Liability Company, or LLC, are the two most common types of holding companies. Because the form you choose may affect your liability and taxes, you should figure out which one best suits your needs.
The corporation structure does not give the same asset protection as an LLC holding company. Thus, most small business owners choose to incorporate an LLC holding company.
Bryant Kirkland is an industry leader who you can turn to for some great tips on this.
Filing Your Business Application
You’ll set up your holding company following your state’s regulations and the type of business you wish to start.
Whether you form a corporation or LLC, you must register with the state. You do this by providing the firm’s name, the articles of incorporation, and the name of the business agent. If you haven’t formed your operating company, you should do so alongside your holding company.
Create Separate Bank Accounts
The holding company and the operating company must keep separate bank accounts and accounting records. This is to retain their independence as independent businesses.
You should form a business account for your holding company and include your new company’s tax ID when doing so.
Fund Your Holding Company
Now you have formed your holding company, you first should fund it to invest in the operating company. You should hold your companies’ wealth in the holding company. Then you can loan money to the operating company when needed to fund operations.
Holding Company Tips Revealed
As much as these are holding company tips, they are also some of the necessary steps you should take to set one up the right way. It may seem that there’s a lot to deal with in the setting up process, but you’ll be glad you set one up in the long run.
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