Asset Protection: Should a Holding Company Own Your Business?

The Advantages of Utilizing a Holding Company

The establishment of a holding company provides an additional layer of legal separation between you and your business entities, as well as your assets. Over the years, various strategies have been crafted to assist business owners, professionals, and those with vulnerable assets in safeguarding their interests against litigation, creditor claims, and other potential legal and financial threats.

In our asset protection practice, we employ a range of legal structures, specialized trusts, and other planning tools to help our clients meet their legal and financial objectives while ensuring peace of mind.

The Role of Holding Companies in Asset Protection

Among the various asset protection options available, one longstanding and proven choice is the holding company. In simple terms, a holding company is a legal entity—typically structured as an LLC or a corporation—that owns, either fully or partially, multiple “subsidiary” or “operating” entities.

By creating a holding company along with its subsidiaries, you can achieve legal separation between the owner(s) and their downstream entities and assets. This arrangement, as discussed below, decreases the owner's liability if any of the entities face legal or financial challenges that could otherwise expose the owner personally.

The Optimal Way of Structuring Holding Companies

As its name implies, the primary function of a holding company is to own other companies and/or business assets. In its most basic or “pure” form, a holding company does not engage in manufacturing products, providing services, or conducting typical business operations; it simply owns the entities, hiring and overseeing senior management (for instance, you) for each entity, making significant policy decisions, and possibly buying, selling, or dissolving its subsidiaries.

However, not all holding companies operate in such a pure manner. A “mixed” holding company, or “holding-operating” company, fulfills two roles by conducting its own business operations while also holding subsidiaries. An “immediate” or “intermediate” holding company can be either pure or mixed and is owned by another holding company higher up the hierarchy. Additionally, a “personal” holding company is defined as an entity where 50% of the ownership is held by five or fewer individuals, and at least 60% of its income is passive. Our office can effectively address any legal questions about holding companies. If you have any questions, please fill out the following form below and a Business Lawyer from our office will get back to you.