Holding companies own assets of other companies. Wyoming holding companies typically do not physically produce goods or services, but they do own shares or assets of companies that do. This comes together to form a corporate group.
A holding company is formed to gain control over one or more other companies. They might also own property. This can include real estate, patents, trademarks, stocks, or other forms of assets.
How It Works
There are two methods through which a corporation can become a Wyoming holding company.
- Acquiring enough voting stock or shares in another company. This means the company that is acquiring will be given the power to control the activities of the other company.
- Creating a new corporation, but retaining all or part of the new corporation’s shares.
It is important to note that although owning more than 50% of the stock of another corporation guarantees control, a parent company can still ultimately control the decision-making process with only 10% of its own stock.
Different Types of Holding Companies
Pure
When a Wyoming holding company is considered pure, it means that it was formed for the purpose of owning stock in other companies. This means that the holding company does not do any other business other than controlling other firms.
Mixed
Wyoming holding companies that are considered mixed control other firms along with their own operations. These are known as a holding-operating company.
Immediate
An immediate Wyoming holding company is when one company retains either voting stock or control of another company. It becomes an immediate holding company only when it is already controlled by another entity.
Intermediate
An intermediate holding is a firm that is a Wyoming holding company of a different entity but also held by a larger corporation. Intermediate holding firms often are exempt from publishing financial records of the company they hold.
Advantages of a Holding Company
Liability Protection
When you form a Wyoming holding company you are essentially placing operating companies and the assets that they use in different entities. This provides a liability shield because the debts of each subsidiary only belong to that subsidiary.
Control Assets for Less Money
Because holding companies are able to control their own assets, they can do so simply by purchasing 51% or more of the subsidiary. This means that the holding company will gain full control of the acquired firm, but save money by purchasing far less than 100%. This will allow you to gain control of multiple entities with a very small investment.
Lower Debt Financing Costs
When you are operating as a Wyoming holding company, you will obtain the ability to lower interest rates on loans. This is typically more than an operating company could do on its own. It also provides the ability to obtain capital when a venture is considered a risk. Rather than the subsidiary obtaining a loan with higher interest, the holding company can do so and distribute the funds to the subsidiary.
Disadvantages of Holding Companies
- Complexity: The use of holding companies and subsidiaries does add a layer of complexity that is not found in a simple single entity situation. It is essential to keep track of all information, keep good records, and note due dates for all of the different companies.
- Compliance Costs: When you form a holding company you will be required to pay compliance costs in the form of formation fees. There may also be extra fees and tax obligations, along with rules for forming an LLC. The only way to avoid these additional costs is to form as a single entity.
How to Set Up a Holding Company
After you decide to form a Wyoming holding company, you will need to go through the steps to actually set it up. The process is not incredibly complicated, but there are five main steps.
1. Type of Business Entity
You will need to decide whether you want to form as a corporation, LLC, or other entity. Corporations and LLCs can both provide the ability to avoid personal liability. Despite this, they are legally managed differently, split financial interests differently, and are taxed differently as well.
2. Taxation
You will need to decide how the entities should be taxed. This means that you will choose to have a separate taxable entity or a pass-through entity.
3. Which State You Will Form In
You can choose to form your entity in any state that you choose, and both the holding company, as well as its subsidiaries do not need to be formed in the same state. This decision will be based on the laws that govern each state, and whether or not you qualify to do business in a state other than where you reside.
4. Name
The name of each company will need to meet specific requirements. This means that you might need to include certain words or abbreviations (such as LLC). There also may be restrictions on what you cannot put into the name. Finally, you will need to make sure that the name you want to use is available at all.
5. Choosing a Registered Agent
When forming a corporation, LLC, or any other business entity, you will need to choose a registered agent. This person is required to be appointed as the point of official communications for the company. You can choose to hire a professional registered agent to ensure your entity stays in compliance.
Should You Start a Holding Company?
Starting a holding company is not incredibly difficult and there are a lot of benefits to doing so. Whether you want to protect your assets, reap tax benefits, or have more control over other entities, starting a Wyoming holding company can be extremely beneficial.