Key Takeaways:

  • A holding company is designed to own assets, stock, or property, providing liability protection and centralized control.
  • Choosing the best state to form a holding company depends on factors like taxation, legal benefits, and business operations.
  • Wyoming, Delaware, and Nevada are among the top states for forming holding companies due to their favorable business environments, asset protection, and low taxes.
  • Series LLCs offer a flexible structure for holding companies, especially for managing multiple properties or assets.
  • States like South Dakota, Florida, and Texas also provide unique benefits for holding companies.

When considering the best state to form a holding company, it's important to examine the laws in each jurisdiction. Some business owners prefer to start a company in their home state, while others choose a business-friendly state with specific tax advantages, such as Delaware.

What Is a Holding Company?

This type of company, often a corporation, owns a controlling share percentage in another company, which is known as a subsidiary. Sometimes a holding company is called a parent or umbrella company. Holding companies can be created to hold assets, property, or stock. The subsidiaries are only administrative entities and do not own the assets in question.

When forming a holding company, you need to understand regulations about what types of businesses can own other businesses. These rules are established by the IRS. An LLC can own a C corporation if it elects corporate tax status, but may not own an S corporation. A sole proprietorship cannot own another company.

If you would prefer not to create multiple businesses, you can set up a single limited liability company (LLC) and then set up a doing business as (DBA) name for each separate project that needs its own identity. This is a good option if your business is small and has few assets.

You can easily start an LLC in most states. Check out the office of the Secretary of State where you live to learn more about the requirements.

Where Should I Form My Holding Company?

Many small business owners ask themselves about the least expensive and most advantageous location for their business entity. Experts say that the most business-friendly states in the U.S. have some or all of the following benefits:

  • Advantageous business statutes and laws,
  • Low tax filing fees,
  • Low or no income tax for businesses,
  • Low or no sales tax,
  • Regulations and taxes for franchises.

You may also want to consider whether you want to live and work in the state in question. While you can certainly establish a foreign entity, this typically carries higher fees and more extensive filing requirements. Keep in mind that unless you establish a physical office in the state, you'll still be subject to taxes and requirements in the state where you are located. If you're open to moving your holding company, consider the following states:

South Dakota has the benefits of legal protection from business liabilities, limited filing requirements, no corporate or personal income tax, and no capital gains tax. In addition, the state boasts plenty of open space, limited crime, and an affordable cost of living.

Wyoming businesses pay no personal or corporate income tax and the state offers tax exemptions to businesses that purchase raw materials for manufacturing. Groceries and gas are also free from state sales tax, and no capital gains tax is enforced, which makes it a popular location for debt collection and real estate investment businesses.

Nevada does not enforce individual or corporate income tax and does not tax corporate dividends. The state has established one of the nation's best business court systems, which minimizes the time and cost involved in litigation. Businesses can exchange stock for real estate, personal property, services, or capital. You'll also enjoy access to both natural beauty and the bright lights of Vegas.

Florida does not charge individual income tax and does not charge state taxes to S corporations. The state also has a sophisticated online service system for businesses, which makes online filing a breeze. Business to business software sales are also tax-exempt. If you love warm weather and lots to do, Florida could be the place for you.

Key Factors in Selecting the Best State for Your Holding Company

When deciding where to form a holding company, consider these critical factors:

  1. Taxation Benefits: States like Wyoming and South Dakota offer no corporate or personal income tax, making them attractive for minimizing tax liabilities. Nevada also eliminates corporate income taxes and capital gains taxes.
  2. Privacy Protections: Some states, such as Wyoming, allow anonymous ownership, shielding owners’ identities from public records. This is a significant advantage for individuals seeking privacy in their business dealings.
  3. Asset Protection: Wyoming and Nevada provide strong asset protection laws, including protections against creditors accessing personal or company assets.
  4. Operating Costs: States with lower filing fees and minimal ongoing compliance requirements, such as Wyoming, are more affordable for startups and small businesses.
  5. Location of Business Operations: If your holding company’s subsidiaries operate in specific states, forming the holding company in one of those states can simplify compliance with local laws.

Delaware: A Popular Choice for Large Corporations

Delaware is widely recognized as a business-friendly state, particularly for larger corporations. Its Court of Chancery specializes in corporate law, providing efficient and predictable outcomes for legal disputes. Additional benefits include:

  • Flexible corporate statutes that allow businesses to customize their governance.
  • No state income tax on goods and services provided outside Delaware.
  • Low formation and annual maintenance costs for corporations.

However, small businesses and single-member LLCs may find states like Wyoming or Nevada more cost-effective.

What Is a Series LLC?

The series LLC is a popular type of holding company among real estate investors, particularly those who own multiple properties in several different states. This structure is a single umbrella limited liability company that contains multiple subsidiary LLCs, each for a separate property. Only certain states allow the formation of a series LLCs, and most require you to establish a registered agent in each state where you own property. Currently, this type of business entity can be formed in:

  • Delaware
  • Illinois
  • Iowa
  • Nevada
  • Oklahoma
  • Texas
  • Tennessee
  • Utah

Advantages of Using a Series LLC for Holding Companies

A Series LLC is a cost-effective and flexible option for holding companies managing multiple assets or businesses. Each "series" within the LLC functions as a separate entity with its own liabilities, assets, and operational guidelines. Key benefits include:

  • Asset Protection: The liability of one series is isolated from others, protecting individual subsidiaries.
  • Cost Efficiency: A single filing fee and annual report typically cover all series, reducing administrative expenses.
  • Simplified Management: Centralized management allows for streamlined operations across various subsidiaries.

States allowing Series LLC formation include Delaware, Nevada, and Texas. Before choosing this structure, consult legal counsel to understand state-specific compliance requirements.

FAQ Section:

  1. What is the best state to form a holding company for privacy? Wyoming offers the best privacy protections by allowing anonymous ownership and shielding personal information from public records.
  2. Why is Delaware a popular choice for forming holding companies? Delaware’s corporate statutes, experienced court system, and tax advantages make it attractive for large corporations and businesses involved in frequent transactions.
  3. What are the benefits of using a Series LLC for a holding company? A Series LLC allows for liability isolation among subsidiaries, cost-effective administration, and centralized management.
  4. Does forming a holding company in a tax-friendly state eliminate all taxes? Not necessarily. You may still need to comply with tax regulations in states where your subsidiaries operate or where the holding company has a physical presence.
  5. What types of assets can a holding company own? Holding companies can own a wide range of assets, including stock, intellectual property, real estate, and other businesses.

If you need help with the best state to form a holding company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.