Hold My Holding Company, Please

A corporate term of art that is bandied about a lot is Holding Company. What is a Holding Company and why does it sound ominous for some reason? We can answer the first part of that question and will leave the second half open for interpretation.

Holding Companies are utilized by major and publicly traded companies as well as small business owners who have multiple operations/locations that may have different ownership or offer differing goods or services. A Holding Company is just like any other corporate entity. Whether it is a limited liability company or a corporation, a holding company "holds" or owns the interests of other companies. So instead of using the entity to operate an actual business, a Holding Company will actually own the operating entity.

Let's look at a practical example to help understand the utility of a Holding Company. Jack owns a restaurant that is doing remarkably well. Jack wants to open a second location and needs to raise money to cover the costs of operation. His first location is owned and operated by his single member (owner) limited liability company. Jack shouldn't use the same LLC to own and operate the new location. The second location will need its own LLC to enter into the lease and operate the new restaurant. This is where we would advise to set up a Holding Company.

Jack's Holding Company now becomes the sole owner of his first restaurant LLC and will be the primary owner, along with investors, of the second LLC. Now Jack's liability is insulated through the use of the operating LLC and the Holding Company as the owner. Equally important is the fact that Jack has now built value in the Holding Company as it is the primary owner of two restaurants.

As Jack's business grows he may want to open additional restaurants. His Holding Company will always represent his interest in those additional locations while investors are only getting ownership in the specific location in which they invest.

There are countless more potential uses and structures for Holding Companies. Understanding the best strategy and uses for them can be complicated without the help of experienced professionals. That's where we come in! We are always at the ready to help set up the best structure for you and your business. Send us your ideas and questions.

This article is for informational purposes only. If you have any questions, please contact our team at Troglia•Kaplan Attorneys.