Holding Company

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,656 reviews

Jump to Section

Need help with an LLC?

Post Project Now

What is a Holding Company?

A holding company is a business entity formed for acquiring another company. It’s a limited liability company (LLC), parent company, or limited partnership (LP) that owns part of a majority of stock to gain managerial control. Holding companies can own assets, pay debts, and register intellectual property (IP) like any other incorporation.

A holding company does not engage in traditional business. Instead, it functions as a parent company to form corporate groups through mergers and acquisitions rather than stock ownership. The company controlled by the parent company is called an operating company or subsidiary.

This web page also discusses holding companies.

What is an Example of a Holding Company?

The most well-known example of a holding company is Berkshire-Hathaway, founded by Waren Buffett. It holds subsidiaries across a wide range of industries worldwide and is estimated at a worth of $102.8 billion. In addition, Berkshire Hathaway has made over 50 acquisitions and 60 investments.

Advantages of a Holding Company

Business owners form a holding company and subsidiaries to structure their business as it expands. A holding company can mitigate risk and maximize operational efficiencies for growing and diversifying a business.

Here are the three advantages of a holding company:

  • Safeguards Assets. A holding company can hold a business’s valuable assets, such as equity, intellectual property, and equipment. The subsidiaries then take over the business’s daily operations and trading responsibilities. As a result, the holding company’s valuable assets are protected from creditors and other liabilities.
  • Minimizes Risk. When a holding company owns assets and operates independently from an operating company, losing assets is minimized if the operating company performs poorly or becomes insolvent. For instance, if an operating company declares bankruptcy, the holding company may also suffer financial losses. Creditors will not pursue the holding company legally, resulting in fewer financial obligations.
  • Reduced Taxes. The holding company may be structured to qualify for lower tax rates. It’s possible to build a holding company in a lower-tax country. However, new laws enacted in 2016 to regulate tax or profit shifting to non-US counties have limited potential tax benefits.
Meet some lawyers on our platform

Daehoon P.

72 projects on CC
View Profile

Tabetha H.

10 projects on CC
View Profile

Zachary J.

34 projects on CC
View Profile

Christopher M.

7 projects on CC
View Profile

Disadvantages of a Holding Company

Holding companies are a great solution when you want to manage many corporations under a single “roof.” However, there are downsides to using a holding company as well.

Here are the three disadvantages of a holding company:

  1. Excessive Capital. Due to the possibility of pooling the holding company’s capital and its subsidiaries, overcapitalization may occur. As a result, shareholders would not receive a reasonable return on their investment in this situation.
  2. No Control Over Director Selection. Subsidiary companies may be compelled to appoint directors or other officers chosen by holding companies. Therefore, this strategy does not always result in resolutions in the company’s best interests.
  3. Subsidiary Exploitation. The holding company may profit from the activities of its subsidiary companies. Subsidiaries may be forced to purchase goods from the holding at inflated prices. They may be compelled to sell their produce at rock-bottom prices to the holding company.

Difference Between an LLC and Holding Company

A holding company could be formed as an LLC. However, the most significant difference is that a holding company does not engage in operational activities, whereas an owned subsidiary LLC could.

Holding Company vs. Operating Company

A holding company is the parent company of the operating company, which is its subsidiary. Operating companies are typically responsible for the day-to-day business management that the holding company controls. Additionally, the operating company is responsible for recruiting all employees and liable for all debts.

How To Start a Holding Company

Forming a holding company is similar to creating any other type of business. The distinction is that a holding company does not manufacture or sell products. Instead, it owns one or more other companies. Still, it can help you protect your businesses from liability and safeguard your assets.

Here are the ten steps for starting a holding company:

Step 1. Select a Location

The first step is to determine the state in which to consider incorporating. Of course, most business owners choose their state of residence. However, Delaware is also an excellent choice for its favorable business services.

Step 2. Select an Organizational Structure

You have two structure options for a holding company, including an LLC, C corporation ( C corp ), or S corporation ( S corp ). LLCs and S corps provide better asset protection, reduce compliance requirements, and allow you to avoid double taxation through pass-through taxation.

Step 3. Your Holding Company’s Name

The third step is to select a business. Naming a company after yourself is nice, but it affords no privacy protection. Select a name that holds meaning to you but does not reveal your name or location.

Step 4. Establish Corporate Bylaws

Next, you create your governing documents in the form of corporate bylaws. Corporate bylaws are an essential governance document that establishes the rules of your holding company. For example, an operating agreement is required for an LLC, while bylaws are needed for a corporation.

Step 5. Establish Ownership Percentages

Establishing ownership percentages includes a description of the ownership percentage received by each member and investment amounts contributed. In most cases, the ownership percentage is proportional to the value of the initial contribution. Additionally, this section of the governing document should include any regulations or rules governing ownership changes. This should consist of the procedure for current owners to sell their shares and for new shareholders or members to join the company.

Step 6. Appoint Directors

Bylaws should also address how the business will be managed. For example, LLCs may be managed by a manager or members, whereas corporations appoint directors. The operating agreement should clearly define the structure you choose. This should also include the manager’s and members’ responsibilities and rights.

Step 7. File Articles of Incorporation

Now it's time to file your articles of organization with your secretary of state’s office. First, you complete a short form with relevant holding company information and pay a filing fee. After filing your articles, you will need to record meeting minutes and file an annual report to stay compliant.

Step 8. Get an EIN

Each business is assigned an employer identification number (EIN) from the IRS after receiving your certificate of incorporation. The EIN identifies your business on federal tax returns. While all corporations require an EIN, certain single-member limited liability companies may be exempt.

Step 9. Open a Bank Account

It’s relatively straightforward to open a business bank account. You must provide the bank with your articles of incorporation or organization, corporate bylaws or operating agreement, and EIN. This account can help you establish credibility and make company purchases.

Step 10. Form Subsidiaries

Generally, it is easier to establish a holding company first and then subsidiaries. This is because you will designate the parent company of the subsidiaries as the holding company for the initial documents to be properly drafted. However, suppose you already own businesses and wish to consolidate them under your holding company. In that case, you must amend each subsidiary company's operating agreement or bylaws to reflect the new owner.

Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers for your legal project. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

View Rebecca
Member Since:
April 6, 2021

Rebecca L.

Free Consultation
Get Free Proposal
San Diego, CA
11 Yrs Experience
Licensed in CA, DC, VA
New England School of Law

I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.

View Samantha
Member Since:
April 15, 2021

Samantha B.

Principal and Founder
Free Consultation
Get Free Proposal
8 Yrs Experience
Licensed in FL, IL
Ave Maria School of Law

Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

View Pritesh
Member Since:
April 19, 2021

Pritesh P.

Chief Legal Officer
Free Consultation
Get Free Proposal
Chicago, Illinois
14 Yrs Experience
Licensed in IL
Western Michigan University Cooley Law School

Experienced General Counsel/Chief Legal Officer

View Richard
Member Since:
April 21, 2021

Richard G.

Free Consultation
Get Free Proposal
1 Yr Experience
Licensed in MA
Massachusetts School of Law

Attorney Gaudet has worked in the healthcare and property management business sectors for many years. As an attorney, contract drafting, review, and negotiation has always been an area of great focus and interest. Attorney Gaudet currently works in Massachusetts real estate law, business and corporate law, and bankruptcy law.

View Ayelet
Member Since:
June 8, 2021

Ayelet F.

Free Consultation
Get Free Proposal
Coral Springs, FL
9 Yrs Experience
Licensed in FL
Nova Southeastern University

Ayelet G. Faerman knows what influencers mean to brands today. With experience as legal counsel for a beauty brand for over 5 years, and overseeing multiple collaborations, Ayelet has experienced the rise of influencer marketing. As the founder and managing partner of Faerman Law, PA her practice focuses on influencer relations including a specialization in contract negotiations.

View Robert
Member Since:
May 12, 2021

Robert D.

Free Consultation
Get Free Proposal
24 Yrs Experience
Licensed in OH
University of Akron School of Law

I am a general practice lawyer with 21 years of experience handling a wide variety of cases, both civil and criminal

View Melissa
Member Since:
May 27, 2021

Melissa G.

Trademark and Business attorney
Free Consultation
Get Free Proposal
Fort Lauderdale
10 Yrs Experience
Licensed in FL
University of Miami School of Law

Melissa D. Goolsarran Ramnauth, Esq. is an experienced trial-winning trademark and business attorney. She has represented large businesses in commercial litigation cases. She now represents consumers and small businesses regarding federal trademarks, contracts, and more. Her extensive litigation knowledge allows her to prepare strong trademark applications and contracts to minimize the risk of future lawsuits.

View George
Member Since:
June 21, 2021

George B.

Free Consultation
Get Free Proposal
Detroit, MI
9 Yrs Experience
Licensed in MI
Western Michigan University - Cooley Law School

I help start-ups, small businesses, and people realize their potential by leveraging my legal and technological experience. Legally skilled in employment law, intellectual property, corporate law, and real estate transactions.

View Ryan
Member Since:
June 8, 2021

Ryan W.

Free Consultation
Get Free Proposal
Mechanicsburg, PA
12 Yrs Experience
Licensed in PA
Widener University Commonwealth School of Law

Ryan A. Webber focuses his practice primarily on Estate Planning, Elder Law, and Life Care Planning. His clients range from young families concerned about protecting their family as well as aging individuals. Ryan provides Estate Planning, Trust Planning, Special Needs Planning, Public Benefit Planning, and Estate Administration. Ryan focuses on the holistic approach to the practice of elder law which seeks to ensure clients are receiving good care when needed and that they preserve enough assets with which to pay for such care. Many families and individuals also come to Ryan for preparation of their wills, power of attorney, and healthcare guidance documents. Additionally, Ryan assists small and medium sized business owners with their organizational and planning needs. From starting or winding down a business, Ryan provides quality business advice.

View Jonathan
Member Since:
June 21, 2021

Jonathan G.

Free Consultation
Get Free Proposal
Lakewood, CO
9 Yrs Experience
Licensed in CO, TX
Texas Tech University School of Law

Small Business Attorney licensed in Texas and Colorado. Based in Dallas, appointments available in DFW area.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call