Why would you create a Holding Company?

By: Elliott Stapleton

What is a holding company?

In Ohio, a holding company is an entity that owns (holds) interests in other companies or assets used by other companies. A holding company exists for the purpose of controlling other companies or assets rather than for the purpose of producing its own goods or services.

Benefits of creating a holding company:

Privacy: A holding company gives you the ability to maintain ownership of multiple companies without being personally listed as an owner. A holding company would use its own tax identification number, which would limit the exposure of the owner’s social security number on record with the entities it owns.

Accounting: For individuals who have interests in real property, it is possible to have a holding company own each property in a single-member limited liability company. This would also centralize accounting for purposes of investments in real property onto one tax return while still maintaining separate liability protection. Note, there could be tax disadvantages to a holding company if the operating company is an S-corporation.

Liability Protection: If you are not participating in the business, using a holding company may add an extra layer of liability protection to passive investments.

Protection at Death: In some cases, using a holding company to own your interest avoids triggering of buy/sell provisions at death (since a holding company cannot “die”). Rather than ownership potentially ending after you are deceased, you can decide who will control the holding company, thus keeping your voting rights which may otherwise have been terminated at death. Note, some Operating Agreements have provisions that trigger the buy/sell provisions upon the death of the owner of the holding company.

Protection of Valuable Assets: For some businesses, there is a principal asset which has a significant value for the operating company; for example, real property, software, or manufacturing equipment. It is possible for the valuable asset to be owned by a holding company and leased or licensed to the operating company for use. In the event the operating company is sued and forced into bankruptcy, the holding company may retain ownership of the valuable asset to be leased or licensed to a new entity.

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