You may have heard the term “holding company” before but wondered what one does or how to start one. Unlike traditional businesses, holding companies do not provide goods or services to customers. Instead, they exist solely to own other companies. Starting a Texas holding company allows you to acquire and manage a portfolio of subsidiary businesses, providing strategic advantages and potential tax benefits.
In this guide, The Curley Law Firm team will provide you with an overview of some essential steps and considerations involved in starting a holding company in Texas. Whether you are an entrepreneur or an investor, understanding the process will help you navigate the legal, financial, and operational aspects of how to start a holding company in Texas. If you have any questions, don’t hesitate to contact us today.
What Is a Texas Holding Company?
Before we get into the specifics of how to start a holding company in Texas, it is important to grasp some holding company basics. As we mentioned, a holding company is an entity that owns the shares or assets of other businesses. These businesses are usually known as subsidiaries. A holding company’s primary purpose is to hold and manage these assets. The holding company provides a centralized structure for strategic planning, risk management, and allocating company and financial resources.
Next, we will discuss the particulars of forming a holding company.
Evaluate Your Needs and the Market
Forming a holding company can be expensive. Before undertaking the time and cost of creating this type of business structure, consider your overall business needs and goals. Since the value of holding companies lies first in protecting assets and second in controlling other entities, they are used only in specific business circumstances. Usually, those circumstances arise when the value of a holding company structure outweighs the cost.
Holding companies can be useful in protecting assets, offsetting debt, and maximizing tax efficiency. A qualified Texas business lawyer can help you understand whether a holding company is right for you.
Market research is also a helpful early step to consider in starting a Texas holding company. You should understand the industry landscape, identify potential target sectors, and evaluate market demand for the services or products offered by your subsidiaries. This research will help you identify viable investment opportunities and tailor your holding company’s strategy accordingly.
Determine Your Business Structure
Selecting the appropriate legal structure is vital when starting a holding company in Texas. Common options include forming a limited liability company (LLC) or a corporation. Consult with an attorney or a business advisor to understand the advantages and disadvantages of each structure. Our experienced business formation team at the Curley Law Firm can help.
Starting a holding company typically requires significant capital investment. A well-structured business plan will increase your chances of securing funding and demonstrate your commitment to success. Explore financing options such as personal savings, loans from financial institutions, or investor financing through a venture capital group or angel investor. The type of financing you seek and receive may also depend upon the type of business entity structure you select.
Comply with Legal and Regulatory Requirements
To establish your holding company in Texas, you must adhere to the state’s legal and regulatory framework. Register your business with the Texas Secretary of State by filing the necessary formation documents, such as Articles of Organization for an LLC or Articles of Incorporation for a corporation. You should ensure compliance with tax obligations by obtaining an Employer Identification Number (EIN) from the IRS to open bank accounts and secure credit. You will also be responsible for complying with state and federal tax requirements.
Develop a Strategic Plan and Good Governance
Creating a comprehensive strategic plan for your holding company will help guide its operations and growth:
- Define your investment criteria, acquisition strategies, and risk management approaches;
- Identify potential subsidiaries to acquire or establish, considering factors such as industry synergies, growth potential, and financial performance; and
- Develop a long-term vision and set realistic short-term and long-term goals that align with your company’s objectives.
A business lawyer can help you develop management agreements between each of your subsidiaries and your holding companies to demonstrate good governance. The Curley Law Firm can help.
Consult with a Texas Holding Company Lawyer Today
Starting a holding company in Texas requires careful planning, thorough research, and adherence to legal requirements. The Curley Law Firm has dedicated much of its focus to business law and understands what it takes to form the right organization for your needs. Adam Curley is a knowledgeable attorney with over a decade of experience. His practice focuses on business law, and he is well known for guiding clients through the business formation process. Contact us today to discuss how to establish a Texas holding company and find out how we can help grow your business.