As a founder, your priority is building your product, growing your team, and scaling your business. Yet as your business grows, so do the complexities and risks. One legal and strategic structure that can help manage these challenges is a holding company. Understanding whether a holding company is right for your venture—and how it works—can provide a significant advantage in scaling your business safely and strategically.

What Is a Holding Company?

A holding company is a parent entity that owns and controls one or more subsidiary companies. Unlike a traditional operating company, a holding company does not sell products or provide services directly. Its primary purpose is to manage and oversee the businesses under its umbrella, which can include:

• Operating companies producing goods or services
• Real estate holdings
• Intellectual property (IP) portfolios
• Equity investments in other ventures

Holding companies are usually structured as corporations or limited liability companies (LLCs), providing both flexibility and legal protection.

How Holding Companies Work

Holding companies function as the strategic brain behind multiple businesses. They typically retain enough ownership in subsidiaries to exercise control, while allowing each subsidiary to operate independently.

Key functions include:

1. Strategic Oversight – The holding company sets the direction for its subsidiaries, making high-level decisions about investments, expansion, and resource allocation.
2. Risk Management – By separating subsidiaries into distinct legal entities, liability is contained within each entity, protecting the parent company and other subsidiaries.
3. Capital Allocation – Profits from one subsidiary can fund another, providing internal financing options and reducing reliance on external investors.
4. Asset Protection – Valuable assets such as IP, trademarks, patents, or real estate can be held in the parent company, shielding them from operational risks.
5. Tax Planning – A holding structure can sometimes allow strategic management of income, losses, and expenses across subsidiaries, potentially enhancing tax efficiency.

Importantly, while a holding company controls the overall group, it does not need to be involved in day-to-day operations, allowing founders and managers to focus on growing individual businesses.

Who Should Consider a Holding Company?

Not every founder or startup needs a holding company. This structure is particularly valuable for founders who:

• Plan to operate multiple businesses or product lines
• Own valuable intellectual property or real estate
• Want liability protection between separate ventures
• Seek strategic flexibility for tax planning and capital allocation
• Are preparing for future investments or acquisitions

For a young founder, a holding company can be especially helpful if you anticipate growth that may include multiple ventures, high-value assets, or partnerships with external investors.

Challenges and Considerations

While holding companies offer significant benefits, they also come with responsibilities:

• Operational Complexity – Managing multiple subsidiaries requires careful governance, accounting, and reporting.
• Administrative Demands – Legal compliance, financial statements, and board oversight must be maintained for each entity.
• Costs – Establishing and running a holding company involves legal, accounting, and administrative expenses.

How to Decide if a Holding Company Is Right for You

If you’re a founder asking, “Do I need a holding company?” consider these questions:

1. Do I own multiple businesses or plan to launch more?
2. Do I have or plan to acquire high-value assets that need protection?
3. Am I concerned about personal liability or inter-company risk?
4. Do I want flexibility in allocating profits across ventures?

If the answer to one or more of these questions is yes, a holding company could provide a strategic advantage. Consulting with legal and financial professionals is essential to determine the optimal legal structure, ownership model, tax strategy, and governance framework for your unique situation.

Conclusion

A holding company is more than a legal structure—it’s a strategic tool that helps founders manage risk, protect assets, optimize taxes, and scale multiple ventures efficiently. While it is not necessary for every startup, for those planning growth, acquiring valuable assets, or operating multiple businesses, it can be a game-changing tool.

At Founders Law, we help founders understand whether a holding company aligns with their business goals, guiding you through formation, governance, and ongoing compliance to ensure your ventures thrive.

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Expert Insight

Tom Budnik, Senior Associate at Founders Law, provides the following perspective:

“Holding companies offer several advantages. For instance, they limit liability by shielding a founder’s personal assets from risks tied to stock ownership, and they centralize asset management by allowing the founder to own and organize all their investments in one place. They can also provide tax benefits, as costs related to shares held by the holding company may be treated as business expenses. Additionally, utilizing a holding company preserves privacy by keeping ownership information protected.”

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This piece was co-authored by Tom Budnik, a startup and venture capital attorney in Chicago representing founders, startups, and venture funds in a range of corporate and financing matters (tbudnik@founderslaw.com), and Omar Zoubeidi, a 3L at Loyola University Chicago School of Law who will sit for the July 2025 bar exam and is not yet licensed to practice law. Nothing herein is intended as legal advice.