how does a Holding Company work


I apologize if this is not the right place to ask, I couldn’t figure out where would be best. But I would like to know how a holdings company works, from start to finish. Requirements, taxes, regulations. Everything including whatever I’m not think of to ask about. Or where would be best to ask!

In: Other

ELI5: what the fuck is a holding company?

Edit: those exist? Ok then

So say you own a small corporation and want to retire. If you sell your business and cash in your shares, all the business’s assets become your personal assets. Those assets may be subject to huge up front capital gains taxes. They’re also no longer protected from potential creditors.

So you start another business. All it does is hold your money in trust, and maybe invests some of it. Then you pay yourself a salary from that money. You’ll still have to pay income tax on that salary, as well as corporate taxes on any revenue the holding company generates, but it spreads the tax burden out over time. It also provides a layer of legal protection to limit creditors’ access to your retirement savings.

You can also use it to store retirement savings while running the business. You reinvest any leftover profits into the holding company. Since it’s a separate entity, if your main business gets sued or runs into some other financial problem, its creditors can’t touch those savings.

Tl;DR a holding company basically protects savings and spreads out the tax burden.