“Should I set up a holding company?” If you have ever asked yourself this question, then this post may be for you.
Business owners utilize the multiple-entity approach of creating an operating and holding company for asset protection and tax reduction. This article will discuss the asset protection benefit of a holding company.
When forming a company, it may be fortuitous to create both an holding and operating company if you expect with the success of the business that assets and capital will accumulate. Without, the asset protection provided by a holding company, the operating company is holding all the valuable assets and exposing the assets to the liability that stems from the company operating, such as creditors, employees, accidents, and other litigation.
A holding company can be an excellent vehicle for asset protection. The operating company is the company doing all the work to make the product or provide a service. A holding company’s sole purpose is to shield and protect valuable business assets, such as real estate, patents, trademarks or interests in other companies, from the liability of the operating company. Having the holding company own all the valuable business assets does not deliver bulletproof protection, but it does put up another company layer between the business’ assets and potential liability and lawsuits. As long as the two companies are properly formed and all the corporate formalities are observed, then a creditor would have to take a stab at “piercing the corporate veil” to access the holding company’s assets. In other words, more money for litigation and effort with uncertain success for a creditor.
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