How to Form a Holding Company
Starting a holding company means setting up an entity that can own other companies, property, or investment assets. The first decision is a structure question: the owner has to decide what kind of company will sit at the top of the structure.
Corporations were once the common choice for this role. Today, many owners use limited liability companies because an LLC can offer a simpler management structure, flexible internal rules, and pass-through tax treatment by default.
Choosing an LLC Structure for Your Holding Company
An LLC can be used as a holding company. The holding company can own membership interests in subsidiaries, hold assets, and keep ownership records separate from the operating work done below it.
The LLC form is usually attractive because it does not require the same director, officer, and shareholder structure as a corporation. The owners can instead use an operating agreement to define management authority, ownership percentages, transfers, voting, and what happens if an owner exits.
Select a Name for Your Company
Choose a name that fits the holding-company role without giving away more personal information than necessary. A holding company name can be plain. It does not need to include the owner's last name, the asset being held, or the operating business's customer-facing brand.
[FACT-PENDING: Texas LLC name requirements and required designator.]
The name should also be checked before filing so the formation is not delayed by a name conflict.
LLC Operating Agreement
The operating agreement is the holding company's governing document. It should explain who owns the company, who manages it, how ownership percentages are calculated, how capital contributions are handled, and how member interests can be transferred.
For a holding company, the operating agreement should also address subsidiary ownership. If the parent LLC will own other LLCs or operating companies, the records should show who has authority to approve acquisitions, sign subsidiary documents, open bank accounts, move funds, and sell or transfer interests.
This document is not a substitute for the state formation filing. It is the private rulebook that keeps the holding company from running on assumptions.
File Your Certificate of Formation
A Texas LLC is formed by filing Form 205, the Certificate of Formation for a Limited Liability Company, with the Texas Secretary of State. The filing fee is $300.
Every Texas filing entity must maintain a registered agent and registered office in Texas. The registered office must be a physical Texas address where service of process and official notices can be received during business hours.
Once the Certificate of Formation is accepted, keep the filed document with the company's permanent records. Banks, counterparties, subsidiaries, and future diligence requests may ask for the holding company's formation record.
Apply for an Employer Identification Number
An Employer Identification Number is the federal tax identification number used for the company. It is part of keeping company and personal finances separate.
A holding company may need an EIN for banking, tax records, subsidiary ownership records, payroll decisions, and other entity-level accounts. Keep the EIN confirmation with the Certificate of Formation, operating agreement, ownership ledger, and subsidiary records.
Open Your Business Bank Account
Before opening a business bank account, have the core records ready:
- Certificate of Formation
- Operating agreement
- Employer Identification Number
The bank may ask for additional information about the holding-company structure, ownership, managers, subsidiaries, and the purpose of the account. The cleaner the records are, the easier the structure is to explain.
Obtain a Business License
Separate the holding company from the subsidiaries that actually operate. That distinction matters. A passive holding company may not need the same permits as a subsidiary that sells products, leases space, hires employees, or serves customers.
[FACT-PENDING: Texas statewide general business license requirement or exemption.]
Setting Up Holding Company Subsidiaries
Once the holding company exists, the next step is organizing the subsidiaries below it. A new subsidiary can list the holding company as its owner in the company's internal records and operating agreement.
If an existing company is moved under the holding company, update the ownership records and governing documents so the change is not just assumed. The holding company should have records showing what it owns, when it acquired the interest, who approved the transfer, and who can act for each company.
The structure only works if the records follow the structure.