Guide

How to Set Up a HoldCo

Decide the Purpose of the Holding Company: Clearly define what the holding company will do—whether it will incubate new ventures, invest in existing companies, or acquire and manage a portfolio of subsidiaries.
Determine Your Structure: Will the holding company own 100% of the subsidiaries, or will it have minority ownership in some ventures? Establish the overall strategy for acquisition or investment.

Choose Between an LLC or Corporation:
- LLC (Limited Liability Company): Offers flexibility and pass-through taxation.
- C-Corporation: Preferred if you plan to raise capital from investors as it allows for multiple classes of stock and greater scalability.
Consult with a Lawyer: Engage a corporate lawyer to help choose the best legal structure and ensure all required legal documents are correctly drafted. They will assist in registering the company and drafting agreements.

Pick a Name: Choose a unique name for your holding company. Verify its availability through your local Secretary of State’s website or a business registration portal.
File Articles of Incorporation (for C-Corp) or Articles of Organization (for LLC):
- Include key information such as company name, purpose, initial directors (if a corporation), and share structure (for C-Corp).
- File these documents with your state’s Secretary of State office or appropriate regulatory authority.
Obtain an Employer Identification Number (EIN):
- Apply for an EIN through the IRS. This number is essential for opening bank accounts and filing taxes.

Form Legal Entities for Subsidiaries: For each subsidiary under the holding company, decide whether they will be LLCs or corporations. File separate incorporation documents for each subsidiary.
Ensure Proper Ownership Structure: The holding company should own the majority of equity or shares in each subsidiary, typically through a direct ownership structure.
File Subsidiary Formation Documents: Just like the holding company, each subsidiary will need to register with the state, get an EIN, and file articles of incorporation or organization.

Open a Business Bank Account for the Holding Company: Use the EIN to open a dedicated account for the holding company. This account will hold funds that are later invested into subsidiaries.
Open Separate Accounts for Each Subsidiary: Ensure each subsidiary has its own bank account to keep finances separate. The holding company may transfer capital to these accounts as needed.

Choose Accounting Software: Implement software such as QuickBooks, Xero, or NetSuite to track finances at both the holding company and subsidiary levels. Ensure you can track finances separately and consolidate reporting when necessary.
Hire an Accountant: Consider hiring an accountant or bookkeeper to manage financial records and tax filings for both the holding company and its subsidiaries.

Set Up the Cap Table: Use cap table management software like Carta or Pulley to track ownership stakes. Record the equity allocation among founders, investors, and employees.
Allocate Founder and Investor Equity: Define the ownership percentages for each founder and investor at the holding company level. If subsidiaries are issuing their own equity, set up cap tables for each.
Establish an Option Pool: Reserve a percentage of equity for future hires. This is especially important if you plan to hire key personnel to manage subsidiaries.

Draft Operating Agreements (LLC) or Bylaws (Corporation): These documents outline how the company will be run, decision-making processes, and the roles of shareholders or members.
Appoint Board of Directors (for C-Corp): Form a board of directors to oversee major decisions. For LLCs, this is typically handled by the managing members or managers.
Create Shareholder Agreements: Draft agreements that outline voting rights, equity distribution, and what happens if a founder or investor exits.

Bootstrap or Raise Capital: Depending on your approach, you may either fund the holding company with your own money or raise money from investors.
Issue Shares or Membership Interests: If raising capital, issue shares (for C-Corp) or membership interests (for LLC) to investors. The amount of capital raised will determine their ownership percentage in the holding company.
Invest in Subsidiaries: Once the holding company is funded, allocate capital to the subsidiaries as needed.

Recruit Key Executives: Depending on your business strategy, hire individuals to manage the holding company’s operations (e.g., CFO, COO) and/or hire managers for each subsidiary.
Set Up Employment Contracts and Compensation Packages: Ensure employment contracts include salary, bonuses, and equity options for key hires.

Register for Payroll Taxes: If you plan to hire employees, you’ll need to register for state and federal payroll taxes.
Choose Payroll Software: Use payroll management systems like Gusto, ADP, or Paychex to manage employee payments, taxes, and benefits.
Provide Benefits: Set up employee benefits like health insurance and retirement plans, especially for key hires.

File for Business Licenses: Depending on the industry and location, some subsidiaries may need specific business licenses or permits. File for these licenses with local authorities.
Stay on Top of Taxes: File annual tax returns for the holding company and each subsidiary. Depending on your structure, you may have to file corporate taxes or partnership returns for the LLCs.
Maintain Legal Compliance: Ensure that the holding company and subsidiaries comply with local, state, and federal regulations. This includes annual filings, updating corporate records, and maintaining good standing with the state.

Define KPIs (Key Performance Indicators): Establish financial and operational KPIs for both the holding company and each subsidiary.
Set Up Reporting Cadence: Create a process for regular performance reviews, where each subsidiary reports to the holding company on progress, financials, and key milestones.

Create a Website: Set up a website that explains the purpose and strategy of the holding company. Include information on the types of businesses it owns or plans to invest in.
Develop a Marketing Strategy: Build a communication and marketing plan that will help the holding company attract investors, partners, and top talent.

Evaluate Subsidiary Performance: Regularly assess each subsidiary’s performance to ensure alignment with the holding company’s strategic goals.
Scale or Exit Ventures: Based on performance, decide whether to scale successful subsidiaries, sell underperforming ventures, or invest in new ones.