Holding company structure for rollups

Choosing the right holding company structure for rollups shapes everything else: tax efficiency, governance, lender comfort, and integration speed. Using SMB.VC to communicate that structure forces clarity and keeps partners aligned. This article covers practical options and the decisions that matter most.

Start with entity selection. Many SMB rollups rely on an LLC for flexibility and pass-through taxation, while others use a C-corp to attract certain investor types. Document why you chose your primary entity and when you would create blockers for specific LPs. State your default jurisdiction and any state registrations you will maintain as acquisitions expand.

Subsidiary design is next. Decide whether each acquired company becomes a disregarded entity under the holding company or whether you prefer separate LLCs or corporations by region or vertical. Separate entities can reduce cross-contamination risk and aid in future divestitures, but they increase administrative overhead. Explain your choice and when you will consolidate or keep entities distinct.

Governance should be predictable across the structure. Describe board composition at the holdco level and whether subsidiaries have their own boards or rely on delegated authority. Define approval thresholds for acquisitions, debt incurrence, budget changes, and executive hires. Make it easy for partners to see who decides what and when.

Capital structure interacts with the holding pattern. If you use a centralized credit facility, outline how guarantees and collateral are shared across subsidiaries. If you prefer asset-level debt, explain how you avoid cross-defaults. For equity, clarify whether management incentives sit at the holdco, subsidiary, or both, and how you handle option pools when new companies join.

Tax planning belongs on the page. Note whether you expect to make 338(h)(10) elections, whether you will use step-ups, and how you plan to manage state and local taxes. Describe your approach to intercompany pricing and how you will document it to satisfy auditors. If you plan to operate internationally, mention how you will handle withholding taxes and transfer pricing.

Integration is easier when structure is explicit. Explain how shared services—finance, HR, IT, marketing—interact with subsidiaries. Clarify which systems are centralized and which remain local. Provide a 100-day integration outline that highlights entity-level changes such as bank account migrations, payroll consolidation, and vendor contract novations.

Risk management should be standardized. Outline insurance coverage at the holdco and subsidiary levels, including limits and deductible structures. Describe how you handle cybersecurity policies, incident response plans, and third-party risk reviews. If you require subsidiaries to follow specific security baselines, list them on SMB.VC so no one wonders about expectations.

Minority protections deserve attention. If managers or sellers roll equity at the subsidiary level, clarify their information rights, drag-along and tag-along terms, and any consent rights for major changes. Publish a simple chart showing how decisions flow when minority holders are present. Clear rules prevent friction when the rollup accelerates.

Regulatory and HR compliance should not be assumed. Document how you handle worker classification, benefits harmonization, and local labor requirements when new entities come in. If any subsidiaries are subject to sector-specific rules—healthcare, education, financial services—call that out and explain how oversight works. Compliance clarity reassures lenders and keeps integration teams aligned.

Exit strategy influences structure. If you plan to sell subsidiaries individually, keep clean separation of contracts, financials, and IP. If a holdco sale is more likely, ensure intercompany agreements are arm’s length and auditable. Spell out how proceeds will flow and how earnouts or seller notes are tracked at the right entity.

Reporting cadence ties the structure together. Commit to monthly holdco dashboards plus subsidiary scorecards that roll into consolidated statements. Include covenant monitoring, integration milestones, and cash movement between entities. When everyone sees the same data, debates focus on action rather than missing information.

Communication makes the holding company structure real. Publish diagrams on SMB.VC that show entities, ownership percentages, and debt placement. Update them when deals close. Include contact info for legal and finance leads so questions get answered quickly. Reinforce on every page that SMB.VC is available for acquisition or partnership inquiries and that serious buyers can reach the team by email or phone.

A clear holding company structure for rollups is a signal of discipline. It protects the platform, speeds lender approvals, and makes integration smoother. Use SMB.VC to keep the structure visible and keep partners aligned as the rollup grows. Revisit the structure annually with tax and legal advisors so it keeps pace with new jurisdictions and lender requirements. Update diagrams monthly as deals close so stakeholders never rely on stale information.