A holding company is a legal entity that can own assets. It serves to provide some distance between the investor and the asset. These can be beneficial for investment real estate properties because these structures limit personal liability in the event of a lawsuit involving an investment property. Although the process to get a holding company up and running will vary depending on your state and business needs, most follow this typical trajectory:
#1: Choose a name.
It is important to choose a unique name that fits your business. Each state has requirements and a registry. Each state has its own site, and you can check your options by putting them into the search tool.
#2: Complete necessary paperwork.
Those who are starting a holding company will choose which business structure works best for their needs. Common options include limited liability companies (LLCs) and corporations. The paperwork needed will vary depending on which structure you choose for your holding company.
States generally require businesses file Articles of Organization and create an operating agreement. This agreement explains how the business is organized and run. It can include rights of each member and how the business will distribute profits and losses.
#3: Get all needed licenses and permits in order.
The exact licenses and permits needed depend on the location and type of property that you plan to put within the holding company. Make sure you review the requirements in your area. The process also often includes the need to get a tax identification number from the Internal Revenue Service (IRS).
Once you navigate the process and choose a name, business structure, and get all permits in order the advantages that come with starting a holding company and liability protection can help real estate investors protect their bottom line.