Holding companies are established for the purpose of owning and organizing one or more other companies.

In the state of Florida, many entrepreneurs own several small businesses. Would these Florida business owners benefit by creating holding companies?

Here are some answers and a brief introduction to the advantages for business owners of establishing a holding company in Florida.

EXACTLY WHAT IS A HOLDING COMPANY?

A holding company is a corporation or a limited liability company (LLC) which owns the outstanding stock in other companies. Those other companies are called operating companies or subsidiaries.

A holding company may also be called a parent company or an “umbrella” company.

Here in the United States, for example, Berkshire Hathaway is a famous holding company which wholly owns both Geico, the insurance company, and Dairy Queen, the ice cream and fast food chain, along with a number of other companies.

But establishing a holding company might also be the right move for someone who owns several small businesses here in Florida, for reasons that you are about to learn.

A holding company typically does not produce goods, offer services, or conduct any activities apart from borrowing, lending, and making investment decisions.

WHY ARE HOLDING COMPANIES FORMED?

For the owners of small businesses, the most important benefits of establishing a holding company are the protection of assets and the reduction of taxes.

Small business owners in Florida usually choose to form a holding company as an LLC, because a corporation’s structure typically does not offer the best asset protection.

Business owners can maximize their asset protection by forming two LLCs, one as an operating company and one as a holding company. Provided that the companies remain distinct legal entities, a holding company is not responsible for the debts of an operating company. If you are a Texas business owner, an asset protection attorney in Texas may be able to help.

WHAT WILL IT COST TO FORM A HOLDING COMPANY IN FLORIDA?

If you choose to form a corporation – rather than an LLC – as a holding company, Florida currently charges a $70 filing and registered agent fee. The final cost of incorporation, however, will depend on factors like your location and the kind of corporation you form.

A business attorney can help you form either a corporation or a limited liability company here in Florida. For an LLC, the state currently requires a $100 filing fee and a $25 registered agent fee.

ARE THERE RESTRICTIONS ON BUSINESSES OWNING OTHER BUSINESSES?

Legal business entities may own other legal business entities in Florida, with only these restrictions:

1. If an LLC owns a corporation, that LLC must choose C corporation tax status. An LLC may not own an S corporation. Only trusts, estates, and individuals may own S corporations.

2. Sole proprietorships may not own other businesses.

ONCE YOU FORM A HOLDING COMPANY, HOW SHOULD YOU MANAGE IT?

To maintain their independence as distinct companies, an operating company and a holding company must keep separate accounting records and bank accounts.

Most of your resources should be held by the holding company, which can then make loans as needed to the operating company or companies.

If the operating company was started before the holding company, transfer the operating company’s business assets into the holding company.

You must maintain accurate records of transactions between your holding and operating companies. A holding company also must claim income for whatever it earns from the operating companies in rent or lease payments.

You must perform any operating activities – such as the sale of products or services – through an operating company. To keep a holding company from any liability to an operating company’s creditors, a holding company must never conduct operating activities.

WHAT DOES “PIERCING THE CORPORATE VEIL” MEAN?

“Piercing the corporate veil” is the legal phrase that describes what happens when holding companies are held accountable for the debts of operating companies.

When the finances and activities of the companies are mixed, a holding company can be ordered by a court to pay an operating company’s debts.

You must ensure that employees who perform operating tasks are the operating company’s employees and are paid by the operating company – not by the holding company.

There are benefits to using an LLC as a holding company, but the importance of keeping a holding company’s activities and finances separate from an operating company’s activities and finances cannot be stressed strongly enough. It’s imperative.

Accounting shortcuts, improperly documented transactions between the companies, and commingled funds could cause a court to “pierce” your “corporate veil” if a creditor sues an operating company.

And that would defeat one of the primary purposes of establishing a holding company.

WHAT ELSE SHOULD YOU KNOW ABOUT HOLDING COMPANIES?

Most of the cash should be kept in the holding company’s account, earning interest, and loans may be made to the operating company as needed. Cash in a holding company account is not subject to any other company’s debts or liabilities.

You must file separate tax returns each year for each company. Do not hesitate to seek tax help from your accountant and/or your business attorney.

In Florida, all LLCs, corporations, and limited partnerships must file an annual report with the state between January 1st and May 1st each year. And depending on your location and the type of businesses you own, you may also be responsible for a number of other fees and taxes.

An experienced Central Florida business attorney can help you keep track of fees, licensing requirements, and deadlines, and can answer all of your questions about establishing and maintaining a holding company here in Florida.

In some cases, it may actually be more advantageous – at least in terms of your taxes – to have your operating company or companies registered in Florida and your holding company established in another state.

HOW CAN A BUSINESS ATTORNEY HELP?

In summary, a Central Florida business attorney can help you determine:

1. whether you would benefit from establishing a holding company
2. whether it should be an LLC or a corporation
3. whether it should be established in Florida or in another state

Business is booming in Florida in 2018, so if you are a business owner, you want to take advantage of the opportunities while they last.

Obtain the legal advice and services that your business or businesses will need.

Partner with an experienced business lawyer who can not only help you establish a holding company and but who can also provide the entire range of legal services that a Florida business owner genuinely needs.

By: Melody Lankford
After graduating from Davidson College, Melody Lankford earned her J.D. from Florida State University’s College of Law in 2004 and was admitted to the Florida Bar that same year. Ms. Lankford joined Raydon Corporation as in-house counsel in 2004. She worked there until 2012, when she founded the Lankford Law Firm. She is an experienced Daytona Beach small business attorney who offers sound legal counsel and experience-based insights to her business clients.
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