Limited liability companies (LLCs) are popular business models for their ability to offer limited liability protections like a corporation, but without corporate regulations and expenses. While LLCs can protect personal assets from business debts, they can leave business assets vulnerable. This is where the idea of an LLC holding company comes in.
What is a holding company?
A holding company is a business entity that doesn’t typically do business—like buying, selling, or manufacturing goods. Its purpose is simply to hold assets on behalf of another company, or several other companies. This could mean that an LLC holding company owns another company outright, or owns enough stock in a corporation to hold a controlling interest.
Can a holding company be an LLC?
Yes. Since a “holding LLC” wouldn’t actually do business, it would most likely be paired with what’s known as an “operating company.” The operating company is the business entity responsible for the buying, selling and/or manufacturing of goods and services. It can also be an LLC.
How do I start an LLC holding company?
You can create an LLC holding company in much the same way you would create a traditional LLC. Depending on the state you’re in, you’ll be required to:
Even though an LLC holding company doesn’t “do business” the way an operating LLC would, it still needs to follow all state protocols in order to remain in good standing.
Holding companies are formed the same way that any other company is formed. The difference between a holding company and an operating company is that a holding company doesn't make or sell anything itself: it just owns one or more other businesses. It may also be used to hold a variety of assets, such as real estate, intellectual property, and other investments. Setting up a holding company can help you to protect your businesses from liability and keep your assets safe, and when you work with us, it's easy to do. We can also setup a free online bank account as part of your setup.
Eight Steps to Set Up a Holding Company
Before deciding how to set up your holding company, you should consider the asset protection, taxation, and privacy benefits of different states. Since holding companies are not engaged in operations directly, you have flexibility in choosing where to base your company. Forming a holding company in Wyoming, Delaware, Nevada, or New Mexico is easy to do compared to other states. This is why so many companies are set up in these states even though comparatively few people live there.
You have two options for the structure of your Wyoming holding company. An LLC will have better asset protection, have reduced compliance regulations, and let you avoid double-taxation thanks to pass-through taxation, and LLCs are simpler in terms of management. Corporations stand out with their perceived greater prestige (which is changing), the built-in management for re-investing, and the fact that a legal precedent for them has been around for a long time.
We often joke that choosing a holding company's name is the hardest part. While other factors can be reasonably weighed and measured, a name usually just strikes you. We recommend a name that's meaningful to you but that does not get rid of your privacy. Calling a company "Your Last Name Enterprises, LLC" may be convenient, but it does not afford you any privacy.
Legally, in most situations, you have to include the appropriate entity identifier in your name. This would be "LLC" in the case of a limited liability company or "Corp."/"Inc." in the case of a corporation. Note that Wyoming does not require "Inc." or "Corp." for corporations. Also, you must confirm that the secretary of state does not already have a registered business with the name you want on file. Wyoming offers a simple name search for businesses so you can check this in minutes online. We'll also do it for free for you, and we'll allow you to enter an alternative name in case the first isn't available.
The next step is to draft your governing documents. Holding companies in Wyoming are not required to have these, but we strongly encourage you to complete and sign them. All owners, managers, and officers should do so. This helps to ensure that the rules you set will be followed. For an LLC, you'll need an operating agreement, and for a corporation, you'll need bylaws. Either type of governing document should address your company's ownership as well as its management.
We provide these documents free of charge, already completed with your company's information. They are provided as Microsoft Word documents, so you can make any edits you like or simply print and sign them. Although these documents contain all of your personal information, they remain internal; there is no requirement to file them anywhere. This is what keeps your LLC or corporation anonymous in Wyoming.
One of the key aspects of a governing document is the outlining of the ownership of the company. For a Wyoming LLC holding company, that information would include the percentage of ownership that every member receives in addition to what they contribute to receive that percentage. In most cases, the ownership percentage relates to the original contribution's value. In the case of Wyoming corporations, the relevant part of the governing documents will outline the initial contributions of stockholders in addition to the stock quantities they receive.
This portion of the governing document should also feature any regulations or rules related to changes in ownership. This should include the process by which current owners would be able to sell out of the company and the process by which new shareholders or members could buy into it.
Governing documents also need to address how the company will be managed. LLCs may be manager-managed or member-managed. The structure you choose should be clearly outlined in the operating agreement. This should also include the responsibilities and rights of managers and members.
For corporations, this document will set up the board of directors that begin the governing. It will also appoint the corporate officers, including the president, treasurer, secretary, and others. The corporate bylaws should include the specific responsibilities of each position, as this eliminates potential confusion in the future.
The next step to register your Wyoming holding company is to file your formation articles with the secretary of state. For Wyoming LLCs, articles of organization act as the formation document, while Wyoming corporations use articles of incorporation. The filing fee is $100 for processing by mail or $102 if you file online. The secretary of state's filing fee is included in our $199 business formation service. There are no other fees due the first year, though there is a $50 annual report due the second year. You can complete this filing process yourself, or you can use a professional filing service to make the process go more smoothly.
Under Wyoming law, you must appoint a registered agent in the state as part of this document. This agent accepts notices of lawsuits and similar processes for the company. The secretary of state asks for the name of the filer: For an LLC, this is the organizer, and for a corporation, this is the incorporator. To maintain your privacy, we recommend that you have us set up your company: We'll act as your registered agent and provide governing documents, making it easy for you to start a business while staying anonymous.
The IRS issues every business an employer identification number, known as an EIN, FEIN, Federal EIN, employer ID, or taxpayer ID. The EIN is used on federal taxes for identifying your company. While all corporations need an EIN, certain single-member LLCs may have an exemption. However, we still advise obtaining an EIN so you can keep the company's finances separate from your own. With no EIN, and thus no separate bank account, it's difficult to argue that you obeyed corporate formalities and deserve the benefit of the law in case of a lawsuit or other negative credit event. Any company with employees that files certain tax returns, has Keogh plans, has multiple owners, or is involved with trusts, real estate, and mortgage investments, estates, farmers' cooperatives, nonprofits, or plan administrators needs an employer identification number.
It's fairly easy to open a business bank account. You will need to show the bank your articles of incorporation or organization, the corporate bylaws or operating agreement, your EIN, and the initial resolution that authorizes account openings. We provide all these, save the EIN, as part of our standard $199 package. You may obtain an EIN yourself or select the choice on our order form.
Wyoming does not require business licenses, unlike Nevada, which charges hundreds of dollars for essentially nothing. Some industries are exceptions that will require a license, though. This step is required for those with business related to wildlife, transportation, insurance, fire prevention, electricity, banking, and food. Specific other professions also require licensing, including medicine, law, barbershops, athletic training, and more. But this requirement will always only apply to a subsidiary Wyoming LLC: A holding company does not do business directly, so you will not need a business license for it.
It is generally easiest to create a Wyoming holding company first and the subsidiaries second. You will list the owner of the subsidiaries as the holding company so the initial documents can be drafted correctly. If you already have existing companies and want to move them under your Wyoming holding company, then you will need to change the operating agreement or bylaws of each subsidiary company to reflect the new owner.
Frequently Asked Questions
Starting a holding company is not significantly different than forming a traditional LLC or Corporation. The filing process is the same, but the difference comes in how the company operates and how the internal documents are structured, e.g. the operating agreement.
A holding company should be setup to provide privacy, asset protection, minimize taxes, and enhance flexibility when investing across various asset classes.
A holding company is designed to hold a variety of assets, but it is formed the same as any other company. The difference is operations are generally outsourced or pushed down to a subsidiary for asset protection.
One person can own a holding company, this is no problem. This holding company may be used to invest as an individual or with other partners. The holding company can be owned by one person or a trust if preferred.