What is a Holding Company? - Holding Company LLC & Real Estate Example

what is a holding company why would you

set up a holding company in this video

I'm gonna go over what the point is of

forming a holding company and I'll be

explaining how you actually set one up

the differences between LLC's and

holding companies as well as going over

some examples of holding companies and

real estate holding companies - if

you're new here my name is Amanda and

you're watching the business finance

coach where I simplify business to help

small business owners succeed I'm the

creator of the small business MBA which

is an online program that helps meet

business owners step-by-step to set up

their businesses as well as the county

taxes and legality give away my free

business spreadsheet template with so be

sure to check out the links below this

video if you're interested now let's

jump into what is a holding company so

people are often asking what's the

difference between an LLC and a holding

company or can an LLC be a holding

company yes an LLC can be a holding

company and the reason I bring this up

to explain what a holding company is is

because these are two totally different

categories you can tell when someone

asks those questions that they think a

holding company is like an LLC but it's

not those are different categories of

types of businesses so an LLC a

corporation those are legal types of

businesses another common category for

type of business would mean what type of

business are you what does the business

do so we have tax preparation businesses

right online shoe-sale business or

hairdressing business right so there's

that type of business like what you

actually do in the middle we have kind

of another area of category where I

would put holding company and the alt

alternative side of a holding company

would be operational company most


our operating companies operating

company just means what the business is

in the business of doing so for example

those types over here in this category

that I said you know tax preparation

type of business shoe store type of

business that's an operational business

and most businesses are that way

especially with small businesses a

holding company on the other hand is a

business for the purpose of separating

liability from an operating company so

what does that mean it means that the

owners or some related party that's

involved with the owners of the business

wants there to be limb or limited

liability more protection from the

operations of the business and I'm gonna

give you some examples in a moment but

what is limited liability means well it

just means that there's assets that

people can't get at so if someone Sue's

an operating company they're not going

to get assets such as real estate that's

in a holding company you know

traditional limited liability as you

form an LLC so that the owner's personal

house and retirement plans and maybe

other business or wife's business can't

be used if the business goes under and

it has debts to pay or if the business

is sued because they did something wrong

and they're found at fault

limited liability the whole point of

forming an LLC or corporation the the

traditional point was this limited

liability so that the owners aren't

liable for the debts of the business

Canon LLC be a holding company well an

LLC can be a holding company and in fact

a holding company is not legal type of

business so yes an LLC can be a holding

company and it usually is exactly how

someone forms a holding company no next

question is how do we actually form a

holding company well you would go out

and form a legal type of business


an LLC or a corporation those are going

to be the two main options and most

people are gonna go with the LLC

rightfully so because it's much easier

to maintain than a C Corp then as

they're setting up that LLC they're

gonna be sure to wherever they're asked

what is the operations of the business

they'll say it's a holding company and

in the LLC operating agreement they're

going to have different clauses than an

operating company that are specific for

a holding company and for how this

holding company is set up Ashley we are

going over a holding company example and

we're gonna use a small business example

but the holding company is going to be

for real estate because honestly it's

most common for small business owners to

use a holding company for real estate so

in our example here we are going to use

Tom who is a plumber and tom is doing

great working for himself so he creates

Tom's Plumbing LLC which gives him

limited liability and reputable 'ti and

so he is the sole owner of his LLC

business and he's doing great

and he notices a building for sale in

his town and he really thinks that this

would help his business so he does out a

business plan and he realizes that it

would be great if he could buy a

building this building they found

however he doesn't quite have the money

so he finds a program through the SBA

called a 504 B program and I have seen a

business use this program exactly as

we're going over in this example so he

says ok he applies for the program that

SBA is going to help him with a bank buy

a building for his business and so he

says okay well my LLC will buy my

building right

and they said you know the SBA says no

well Tom's plumbing LLC that's your

operating company and that means that

that's where you service your clients

and you do plumbing activities that

you're in the business of doing so you

know there's a lot of liability for the

work that you're doing there so we would

prefer if you set up another LLC to

specifically buy this building so Tom

creates Tom's of building LLC and this

is a holding company to hold the real

estate that he's buying for his business

and then you can't just have a business

for the purpose of only holding an asset

the point of this business is to

actually rent the real estate - Tom's

operating LLC business so that's an

example of a holding company where the

SBA the bank they want this real estate

in a separate business so that it's not

exposed to as much liability as his

operating business it just keeps it

separate from that level

Tom could still be the sole owner of

both LLC's which actually makes things

much easier for him for taxes to wrap up

guys we've covered what a holding

company is which essentially just means

that it's a business for the purpose of

holding a certain activity for liability

purposes it's essentially a type of

business like an operating business only

it's a holding company which is

specifically not an operating business

well thanks for watching guys I'd love

to hear from you in the comments below

about why you are interested in a

holding company what type of plans do

you have in store and again if you need

to get your accounting and quarterly

taxes organized don't forget I have a

free spreadsheet all in the comments

below lots of links down there for you

to check out and there may be a video

that YouTube thinks you would like read

about here so check that out as

otherwise I hope to see you next time

bye guys