Business: Operating Entities and Holding Entities

An operating entity is a business that is actively engaged in offering products or performing services, whereas a holding entity is a business that owns assets.

Examples of operating entities include businesses that offer products for sale to either retailers or consumers, active farming operations, transportation/trucking companies, automotive service providers, and construction companies.

Examples of holding entities include businesses that own operating assets, equipment, real estate, and other business interests. Often, businesses will have both an operating and holding entity for asset protection.

Generally, operating entities carry the most business liability risks for owners. An ideal asset protection strategy to decrease business liability risk is to set up a holding entity that owns the business assets used in the operating entity.  The holding entity then leases the business assets back to the operating entity.

For example, a construction operation has a holding company that owns its equipment and machinery which is then leased back to the operating company.  Other examples include separating the real estate from a storefront and separating farmland from a farming operation.

Give us a call today at (605) 275-5665 if you would like to learn more about these strategies.