What is a Holding Company?
A holding company is an entity that owns other businesses but doesn't operate them directly. Think of it as a parent company that holds the 'children' — your operating businesses.
Why Founders Consider Holding Companies
- Asset protection: If one business gets sued, others are protected
- Tax optimization: Move money between entities efficiently
- Easier succession: Transfer ownership at the holding level, not business by business
- Centralized management: One entity owns everything, simplifying big-picture decisions
When a Holding Company Makes Sense
- Multiple operating businesses: You run 2+ separate companies
- Significant assets: Real estate, equipment, or IP that should be protected
- High liability risk: One business could take down everything without separation
- Planning for exit: Easier to sell individual businesses or the whole portfolio
When It's Overkill
- Single business: No need for complexity with one operation
- Low revenue: Administrative costs outweigh benefits
- Simple structure: If liability risk is low and assets are minimal, keep it simple
Common Structures
Simple Two-Tier
Holding Company → Operating Company
Good for: One main business with significant assets
Multi-Business
Holding Company → Multiple Operating Companies
Good for: Several separate businesses
With Asset Protection
Holding Company → Asset LLC (real estate, IP) + Operating LLCs
Good for: Separating valuable assets from operational risk
The Costs and Complexity
- Formation costs: Each entity needs its own formation ($200-1,000 each)
- Registered agent: Each entity needs one ($100-300/year each)
- Tax returns: Each entity may need its own return ($500-2,000 each)
- Banking: Each entity needs separate accounts
- Record keeping: Maintain separation or lose liability protection
Getting Started
Don't create a holding company just because it sounds sophisticated. Work with a business attorney and CPA to determine:
- Do your current assets and risks justify the complexity?
- What's the ongoing cost vs. potential protection?
- How will money flow between entities?
The right structure is the simplest one that accomplishes your goals.