Starting a Holding Company

by Chuck Ayers; Updated September 26, 2017
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Holding companies require substantial financial resources for success and are formed to serve as a parent to one or many companies. Before starting, a clear business plan should be developed. For example, a holding company may specialize in one industry or can serve as a parent company to many diversified industries or companies that it evaluates as high growth or high yield. The advantage of holding companies is that it can purchase the majority interest and therefore essentially control or own publicly traded companies with anywhere from 10 percent to 50 percent of a company's stock, making it easier and cheaper than mergers or acquisitions. A holding company also shields the principals from liabilities that may be incurred by the companies it owns. There may also be tax benefits to forming a holding company, depending on how much stock it owns in particular subsidiaries.

Items you will need

  • An attorney
  • Investors
  • Articles of Incorporation
Step 1

Form your well-financed investment group and develop a business plan, including by-laws specifying how the organization will operate and the responsibilities of each principal. The plan should include articles of incorporation on how the company is organized, its principals, when and where the board will convene, by-laws of operation and its long-term and short-term goals. Consult with the state Bureau of Corporations (the name may vary by state) to determine whether or not the name you have chosen for your company is already in use. If not, register with the SBC in the home state of your operations. Most states require a nominal fee and either annual or bi-annual registration. Depending on the goals of the holding company, you can form a corporation, a limited partnership, a Chapter C, Sub Chapter S, or just about any form of corporate entity that best suits the goals of your business plan.

Step 2

File a Doing Business As (DBA) form with the county clerk or its equivalent in the county of incorporation, though this varies by state. Most states require you file the DBA notice with the county but some, like Vermont, require that the paperwork is filed with the town clerk in which the business is located. This will require that you publish an announcement weekly for 30 days in a newspaper of general circulation where your holding company is located.

Step 3

Begin acquiring stock in the company or companies for which you formed the holding company in the first place. You're now in business.

Tips

  • If your company holds 80 percent or more of a particular company's stock, it could be eligible for tax-free consideration on the dividends paid by the company in which you own the stock. Consult with a tax attorney to determine the eligibility requirements.

    A holding company can loan money to its subsidiaries using the borrowing company's equipment and other real property, including inventory in most cases, as collateral. It gives the holding company the first lien (behind taxing authorities) should the company become insolvent or fail to meet terms of the loan.

About the Author

Chuck Ayers began writing professionally in 1982, breathing life into obituaries, becoming a political and investigative reporter at a major East Coast metropolitan newspaper. He now freelances and is a California communications and political consultant. He graduated from American University, Washington, D.C., with degrees in political science and economics.

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