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Is creating a holding company for real estate worthwhile?

On Behalf of | Feb 10, 2023 | Real Estate |

Establishing a unique business entity can be a powerful protection for proprietors. Those new to entrepreneurship and investment may hesitate to use instruments such as holding companies.

Understanding what the structure can do helps a person to make a suitable decision regarding this resource.

What a holding company is

A holding company is a separate legal entity from the business owner. The company directly owns the assets instead of the individual. This makes the structure responsible for debts, liabilities and legal action.

The holding company can be any type of business entity. However, many people find a limited liability company to be the most straightforward to form. Each state has unique requirements for filing for an LLC and drafting the articles of organization.

Reasons to start a holding company

Owning a property brings inherent risks. A primary reason for a holding company involves protecting personal assets.

An accident on the property can lead to a lawsuit from the injured party. The injured person can sue the owner, whose assets are vulnerable to seizure, to pay damages. When an LLC owns the property, the person sues that entity and only assets in its accounts are vulnerable.

A holding company can even protect other business interests. For example, the owner may have other companies. One organization can handle the sales and operations, while the holding company owns the assets related to the work.

A person may file a lawsuit that involves the company performing the sales and operations. Since assets, such as equipment, sit in the holding company, a court may not be able to seize those items to compensate a plaintiff.

Holding companies can be an excellent tool for investors who use them correctly. Individuals can review their circumstances to determine how a holding company may benefit their investment plan.