Jared Pilon
If you've talked with other business owners, chances are the topic of holding companies has come up. Maybe they told you they just set one up. Maybe your lawyer mentioned it. Maybe you read something online and started questioning whether you're missing out on something.
It's one of the most common questions I get: "Should every incorporated business have a holding company attached to it?"
My answer is almost always the same: it depends.
I know that's not the satisfying, definitive answer most people are looking for. But every business is different, every family situation is different, and as a result, every succession plan is going to be different.
Before you go down the road of adding a holding company to your corporate structure, ask yourself: Does this solve a problem for me?
If you can't answer that clearly, keep reading.
What a Holding Company Actually Is
A holding company is generally a corporation that owns assets. Your operating company is the business that serves customers, pays employees, generates active revenue, and carries the day-to-day business risk. A holding company can own the shares of that operating company or hold real estate and other assets.
The Cost of Complexity Without Purpose
Business owners will set up multiple holding companies in the first few years of operating only because someone else told them it was the right move. Years later, they're paying additional accounting and legal fees, filing multiple corporate returns every year, and when asked why the structure was set up, no one can give a clear answer.
That's the outcome when structure is built for the wrong reasons.
One of the principles I've developed over the years is that you shouldn’t create complexity unless there is a specific reason to do so. If there isn't a meaningful legal, tax, or succession planning benefit, why add the layers? Complexity costs you time, money, and clarity — especially when it's time to transition.
When a Holding Company Actually Makes Sense
There are situations where a holding company creates tangible value.
Protecting What You've Built
In one scenario, your company has accumulated significant profits over the years. Rather than leaving every dollar sitting inside the operating company indefinitely, you've gradually moved excess capital into a holding company through appropriate planning. Then one day, the operating company faces serious legal challenges. Because you had separated that wealth from the day-to-day business, you have a very different conversation than the business owner who kept everything in one place. A holding company doesn't guarantee protection, but when used correctly as part of a broader strategy, it can be a buffer.
Creating Options at the Time of Sale
Imagine you own both your operating company and the building your business runs out of. A strategic buyer approaches you to purchase the business, but they don't want the building. If your real estate had been structured separately, you would have options. You could keep the building, lease it back to the buyer, and collect income from it for years. Eventually, you could sell it separately on your own timeline.
A holding company gives you flexibility, and flexibility creates options.
Common Business Structuring Mistakes
The biggest mistake I see business owners make is treating a holding company like a goal. It's not. It's a tool. And like any tool, it works well when it's used for the right job. If not, it just adds weight.
The second biggest mistake is waiting too long. Planning opportunities are much easier to implement years before a business transition than they are months before one. Owners will only start asking the right questions after someone has already approached them about buying the business. At that point, some of the best planning options were already off the table.
Don't Build Your Structure Based on What Someone Else Did
The best corporate structures are designed for tomorrow's opportunities. That means thinking about where you want to be in 10 years.
If you're not sure whether a holding company makes sense for your situation, that uncertainty is worth exploring sooner rather than later. Some planning windows close without you realizing, and you don't always know what you missed until it's too late to go back.
Legacy Accounting LLP works with business owners across every stage of that conversation, from initial structure reviews to full succession planning. If you'd like to talk through where your business stands today and what your options might look like down the road, contact our team today.
Want to explore the question of holding companies further? Listen to Legacy: the Business Succession Podcast
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Posted: 8/4/26
