By Associate Attorney Heather McKaig
Holding companies are having a resurgence in popularity recently. Interest, as represented by Google searches, has steadily grown and experienced a marked increase in the past eighteen months. A holding company is a parent company, usually a corporation or LLC, that owns or controls other companies. Some holding companies are created just to own property, such as real estate, intellectual property, or stocks. Unfortunately, holding companies and their structure can be misused by those attempting to conceal information about the nature of their businesses in multiple tiers of management or by the holding company itself exerting overreaching control and making unreasonable demands of its subsidiaries. Most business owners who express interest in holding companies cite liability protection and loss protection as their primary purposes for having one. However, like other corporate entities, the liability protections of holding companies can be disregarded by courts in favor of creditors if the companies are not formed, owned and managed correctly. Holding companies are not the only means to protect assets from creditors. Both corporations and LLCs provide protection of an individual’s assets from business creditors. And having properly organized, separate LLCs or corporations keeps creditors of one business from reaching the assets of another business. Holding companies are subject to the same formation, reporting, and maintenance requirements and fee schedules as other companies. Each subsidiary within the holding company must also keep up with its own corporate governance in addition to its day-to-day management. Adding the holding company framework creates more work for the business owner in filing and compliance, not only upon formation, but also with regular reporting each year. More tiers of reporting and compliance brings unnecessary expense and added risk of a missed deadline or annual report. Therefore, the holding company framework is sometimes more trouble than it is worth. If you are interested in having a discussion about what business structure is right for you, please give Jesson & Rains a call!
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November 2024
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