Holding Company

Updated on 2023-08-29T11:57:08.228622Z

Holding Company

A holding company is a parent company, limited liability company, or limited partnership, which holds ample voting shares in another company. If you have multiple companies, you can organise them in an ultimate holding company and the former is considered a holding company. This is a business structure that provides easier corporate control and greater asset protection. It is essential to understand how a holding company structure works and what each of the companies can do. This will help you to make sure that you are running the structure correctly.

A company is a legal entity. It is legally separated from those who operates it and have shares in it. A company has full responsibility for its legal and financial obligations. Each company must have a unique name, a contact office, and at least one share, a shareholder, and a director. And a holding company must also have all the requirements of a company. However, the difference is that a holding company has the assets of its subsidiary companies.

Types of Holding Companies

Pure: A pure holding company is the one which is formed to hold the stock in other companies. The Company does not participate in any other business other than controlling one or more companies.

Mixed:  A mixed holding company controls another company but also engages in operations. It is also known as holding-operating company.

Immediate: This type of holding company is the one that retains controlling stock of another company despite the fact that the company itself is already controlled by another entity. It is a type of holding company that is a subsidiary of another company.

Intermediate: This type of holding company is a holding company as well as a subsidiary of a large corporation. An intermediate holding  is a company that is already a subsidiary of another.

 What are advantages of a holding company?

A holding company has many advantages. It means that you can store your assets in a different company. If your company goes into receivership, your assets held in the holding company have a lower risk of being claimed by the creditors to pay off their debts.

 Assets held in a holding company have a lower risk of being claimed by creditors to pay outstanding debts.

Having a holding company structure can also depress a corporation’s overall structure by basing certain parts of the business in jurisdictions that have lower tax rates.

And, if a holding company is set up correctly, the debt liability of one subsidiary won’t impact the other.  If one subsidiary were to declare bankruptcy, the other companies will not be impacted.

What does a holding company do?

A holding company holds the assets of its subsidiary companies, while the subsidiary companies  manage the day-to-day operations of the business. It usually holds a controlling or majority stake in the subsidiary companies, so it can make administrative decisions  for them and they can  focus on business operations.

What is the difference between a holding company as distinct from ultimate holding company?

While a holding company is a separate company that holds one’s company assets, which means that a subsidiary company can continue day-to-day work without much risk, an ultimately holding company.

Structure is a corporate organisational structure, made up of ultimately holding company at the top, which holds assets of its subsidiaries. It does not participate in operational part of the company or day-to-day matters but manages the assets and can take major corporate decisions on the structure as a whole.

Businesses that are fully owned by a holding company are referred to as wholly owned subsidiaries.  Although a holding company can hire and dismiss managers of the companies it owns, those managers are ultimately responsible to their own companies.

What is an example of a holding company?

A well-known holding company in the US is Berkshire Hathaway. It owns assets in more than one hundred public and private companies, including Dairy Queen, Clayton Homes, Duracell, GEICO and more.

Difference between a subsidiary and a wholly owned subsidiary?

The difference is in the amount of control held by a parent company. If a parent company has controlling stake in another company, which means it holds a majority of shares, then the subsidiary is said to be wholly owned. The stake can be anywhere between 49% to 90% or even up to 100%.