Wyoming is the best state to register a holding company for a number of reasons: The State’s laws provide comprehensive protection against liability, their privacy laws are exceptional, and their tax laws are the best in the US; Wyoming currently ranks Number 1 on all 2022 US tax indexes.
Often dubbed to have the ‘most business-friendly tax climate,’ more and more Americans are incorporating smaller companies into a central holding group to take advantage of the awesome tax brakes that the state of Wyoming offers.
About Holding Companies
Holding companies are businesses that exist solely for the purpose of owning or ‘holding’ other companies under one main company name. It maintains the directorships and oversight of all the companies and assets falling under its main umbrella, but it does not necessarily get involved in the day-to-day management and operation of each company.
Holding companies make money via dividends from the companies they own, or have a stake in. They may also source revenue from royalties from any patents or copyrights they hold on products or services offered by each subsidiary. The two main reasons businesses or investors choose to register one central holding company when acquiring other assets is to offer tax liability protection and to lower debt financing costs for the shareholders/owners of these multiple businesses.
Pros and Cons of A Holding Company
Pros of Registering A Holding Company
Registering a Holding Company has more advantages than disadvantages. Being the central authority and decision maker in the running of each business in the group means that owners can stay in control of the overall direction the business is going in.
With a holding company, a lot of legal risk is reduced and there is huge potential for dividends to be tax-free. Having a number of assets in this way will also mean that the banks will look favorably on financing all the various businesses involved. This will also allow the holdings company to make bulk capital purchases.
Because the company is ‘spread out’ or diversified in this way, there is also much less financial risk to both the partners, shareholders and the holding company itself.
Cons of Registering A Holding Company
When a major company diversifies or invests by acquiring other companies in potentially very similar industries, a lot can go wrong, too. One of the major problems holding company executives face is how to balance the amount of time and funding each subsidiary company receives - disrupting this fine balance can lead to competition between them, running the risk of market cannibalization.
Further disadvantages include the decrease in genuine customer connection by the increasing distance between ownership and the market. This distancing can also lead to a number of problematic situations between the umbrella companies and the main holdings company by exacerbating antitrust issues.
Liability Protection for Holding Companies
LLC Holding companies can have their tax rates lower because any losses incurred by a subsidiary company can then offset the profits of another company in the group. The dividends paid out, which is the sum of money given out to all shareholders of the holding company, do not create a tax liability. This is because the company is not considered to be an individual entity, and according to US tax laws, is not tax liable.
Why Wyoming Is Best for Holdings Company Liability Protection
Wyoming, ranking Number 1 overall on the US Tax Index for 2022, is especially superior to other states in the Corporate Tax Regulations category. Wyoming’s Liability Protection Laws offer the biggest benefits for holding companies by protecting each stakeholder’s individual assets if they happen to have legal action taken against them. Also, the tax rules in Wyoming protect all business assets, which includes real estate and hard cash if a stakeholder is sued personally.
Separating assets into legal business entities can bring significant legal liability and tax protection. Simply put, Wyoming is a great place to do business, but as much as it is well known to have the most business-friendly tax climate, it also boasts outstanding connectivity and transportation, super safe neighborhoods, a well-funded public education drive, and an abundance of fresh air in the great outdoors.