Most company owners are at constant risk of business uncertainty, which is why they keep identifying ways for efficient tax planning and asset protection. While there are several options available to protect your valuable assets, only a few choices are as effective as creating a holding business structure.
A holding company divides your business into several subsidiaries. Each subsidiary entity may or may not share interests with the other, but they are all owned and controlled by a single parent company.
The holding company should have a minimum of a 51% stake in the operating company to control and influence decision-making. A holding company shields your valuable assets from financial risks and losses while ensuring privacy and tax benefits.
If you are a business owner, here are five tips for you to consider when starting your own holding company.
- Determine Your Business Structure For Your Holding Company
The type of business structure you adopt depends on your objectives and goals. So it’s essential to assess your business requirements for a holding company.
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Once you understand your holding company’s purpose, you need to find an ideal business structure. Selecting a business structure is crucial as it affects your taxes, assets, and liabilities. While there are multiple ways to structure your holding company, the two most predominant forms are the corporation and the limited liability company (LLC).
The LLC structure is the most popular entity as it is simple to administer and offers several advantages over other structures. All you have to do to form an LLC is use an LLC Operating Agreement to identify your business as a limited liability company and establish how it will operate.
2. Select a Name For Your Holding Company
Choosing a name is another crucial step and is usually the hardest part to start your holding company. A business name is essential when registering a company. It should also comply with the requirements set up by the governing state.
Try to give a name that resonates with your business objectives and is easily scalable. You must also check with the Secretary of the State to confirm whether the name you choose isn’t already registered as a trademark with some other business. The holding company’s name should also end with your entity structure, such as LLC or Corp.
Your holding company should also have an online presence, for which you’ll have to ensure the domain name is available. Avoid using your name as it will get rid of your privacy.
- Register Your Company With Relevant Departments
Once you’ve come up with a name for your holding company, the next step is to file a business application for your holding company. If your operating company isn’t already incorporated, make sure you register it as well.
The laws required to register your company vary depending on the state you want to operate in. Setting a holding company in some states is comparatively easier than in other states and offers asset protection and relaxation benefits.
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Whatever the business structure and location you choose, you’ll need to prepare and file a memorandum and articles of association with the state authorities. It outlines your company’s purpose and objectives, the names of the personnel responsible for operating the company, and how the business-related decisions will be made.
You’ll also need to register with the Companies House, which will issue a certificate of incorporation (COI) to legalise your company’s formation.
- Create a Bank Account for Your Holding Company
Since the holding company is independent of the operating company, you’ll need to maintain a separate business bank account specifically for your holding company. A separate bank account will ensure a separate accounting for all your transaction statements and provide you with liability protection. Separate bank accounts for operating and holding companies also ensure a smooth tax filing process.
Opening a business bank account that is unique and specific to your business is simple. If your holding company is a corporation or LLC entity, you’ll need to present documents like articles of association and your COI.
- Deposit the Assets in Your Holding Company
To start the functioning of your holding company, you’ll need to fund it. Make sure all your wealth is deposited with your holding company so that you can invest it in the operating companies as needed.
You should first create a holding company and then identify the subsidiary companies to fund operations. If the operating companies were created before the holding company, make sure you sell all the valuable assets of the operating companies to your holding company. This keeps all your assets safe from loss.
Ensure that all the transfers of assets, including land, buildings, or properties, are accompanied by full documentation.
Conclusion
A holding company mitigates the risk of losing assets and offers tax relaxation and privacy. Also, the key benefits of creating a holding company outweigh the challenges, making it an ideal option for business owners.
Nevertheless, the structure involved in a holding company is quite complex, so the decision to create a holding company should be made only after in-depth market research and analysis.
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