Why do entrepreneurs opt for a holding company? First of all, they may need to expand their business, and a holding company will be a very convenient structure for this purpose. Second, if you have several companies or other units (like real estate in different countries), it may be really beneficial for you to unite them under the umbrella of a holding company. If it is managed competently, it will bring more profit than several units owned in different countries.
However, a holding company is not a choice for everyone: it is a new level of structuring your business. Therefore, you will need to collect a lot of information before you make a final decision. We would like to invite you to our portal called International Wealth to read more detailed information on how to register a holding company. You will also find lots of other articles devoted to foreign business, banking, or investments, that may be of interest to you.
If you need to discuss some issues with a competent expert, you can book an individual session with our specialists who will give you useful advice and provide all the data you need to make a well-informed decision. If you have trouble choosing a jurisdiction to incorporate your company, we will help you select a suitable option free of charge. And if you want to delegate all the administrative challenges to us and get a company with minimum involvement on your part, you can buy our package of services and concentrate on your business instead.
How You Control and Manage Your Holding Company
The holding company is also referred to as a parent company, and its primary task is to hold the assets (shares) of other companies. If the holding company possesses 100% shares of a legal entity, the latter is considered a wholly-owned subsidiary. However, the parent company may be the holder of any number of shares in any company.
The subsidiary is managed independently by its top executives, and the holding company directors do not have any impact on its day-to-day activities. However, the holding company makes strategic decisions regarding the existence of the subsidiary (whether to dissolve it or not) and appoints the directors. The holding company’s management is also responsible for the subsidiary’s profit distribution.
The legal forms available for ordinary company formation (corporation, LLC, or partnership) are also possible in the case of a holding company.
If you feel that it’s high time to restructure your business, contact our experts for advice by visiting the link above.
Holding Company: Main Functions
Holding companies may have different structures and perform various functions. However, in most cases, a holding company possesses controlling interests in the subsidiaries and manages them on a general level. It rarely interferes with the daily activities of each particular subsidiary, but it makes strategic decisions.
Entrepreneurs mainly start a holding company to ensure enhanced protection of assets and business (real estate, patents, trademarks, and so on).
Let’s take a look at a practical example to see how your business can be preserved – at least in part.
Imagine you have a company that produces snacks and another one that produces drinks, and they are managed by the holding company. If the company that produces drinks goes bankrupt, neither the holding company nor the company that produces snacks shall be liable for its debts. Thus, even if you lose your drinks company, you will still have your snacks company and holding company intact.
Holding Company: 5 Types
What is the purpose of establishing a holding company? If you have a clear answer to that question, it will be really easy for you to choose one of the five most commonly established types of holding companies. Let’s look at them in more detail.
Pure Holding Company
This type of company is not engaged in the production of any goods or provision of any services. Its main function is holding controlling interests of subsidiaries or valuable assets and controlling them.
Mixed-Activity Holding Company
This type of holding company not only holds assets and shares but also engages in independent activities connected with manufacturing or services. It is chosen most often as the possibilities it provides are really wide.
If a parent company possesses controlling shares in the subsidiaries that engage in different unrelated industries, it is called a conglomerate.
Direct Holding Company
This is a particular type that differs a lot from the above companies: it serves as the owner of shares in another company that is owned by a third party (these may be voting shares/interests).
Intermediate Holding Company
This is a link between a major holding company and its subsidiaries. Imagine a company called Vendor that owns a company called Vending Machine, which in its turn owns a company called Chocolate Bar. The Vending Machine is an intermediary holding company that connects the Vendor and the Chocolate Bar.
If you want to start a new line of business, you can transfer all the required assets and powers from the main holding company to a subsidiary that will later act as a holding company for a few subsidiaries that will be created. To illustrate, the main company called Food will create a subsidiary called Ice-cream that will subsequently own controlling shares in Vanilla Ice-cream, Chocolate Ice-cream, and Strawberry Ice-cream subsidiaries.
Holding Company: Main Advantages
Let’s look at the main takeaways of a holding company:
- Tax optimization. This may require the specialist’s assistance, but you can legally use two ways of tax optimization. Click on the above link to read in detail.
- Limited liability. Each subsidiary is independently liable, and so is the holding company. There is no joint responsibility for each company’s debts.
- Lower capital expenses. The holding company does not need to possess 100% of the subsidiary’s shares to control it – a controlling package will be sufficient. Therefore, you can spend less money on actual company acquisition.
- Joint expertise and resources. If the group of companies jointly managed by a holding company is focused on the same industry, you can benefit from joint tangible and intangible resources.
Visit the above link to find out more about holding companies and get in touch with our experts to discuss anything that worries you or obtain the information you need!