Businesses come in various forms and structures, each with their own advantages and disadvantages. A Dual company structure is one such form, and they have proven to be a great way to protect your business and its valuable assets by providing an additional layer of protection.
This article will serve as an explainer on the dual company structure, and the role of the holding company and the operating company. The advantages and disadvantages of a dual company structure will also be explored.
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What is a Dual-Company Structure?
In establishing a dual company structure, two companies will be created. The holding company and the operating company. Under this structure, the companies do exactly what their titles suggest.
Holding Company
The holding company acts to hold major assets, capital and other property. The operating company’s ownership is included in this, with 100% of the shares on hold by the holding company. Some of the assets under the holding company’s ownership include:
- Intellectual Property
- Real Estate
- Cash
The holding company doesn’t oversee the day-to-day workings of the business, nor produce any of the goods or services itself.
Operating Company
The operating company is where the traditional operations of the business take place. Day-to-day work, like entering into contracts with third parties, hiring employees, providing goods and services, and handling customer service. The operating company also serves as the public face of the business. Additionally, it also holds all of the liabilities of the business, as it conducts all the trading. Consequently, the operating company is most at risk, and is accountable for anything that goes wrong in the business.
What are the Advantages of a Dual Company Structure?
They key benefit of arranging a dual company structure is the additional layer of protection provided. The additional protection will help limit the liability of the business while protecting its major assets and capital.
For example, the business was to face legal action from an employee or customer, they would have to sue the company that they had the legal relationship with. This would be the operating company in a dual company structure. In such an event, the business’ major assets and capital would be kept out the equation, as they are in the holding company’s possession.
Under this structure, it is the operating company that is exposed most of the risk in the business’s dealings. Dual company structures are particularly attractive to companies that hold valuable intellectual property. Furthermore, in the face of insolvency, the holding company and its assets will protect against creditors and other liabilities.
Another advantage of dual company structures is the platform it provides for the business’ direction. As the company grows and develops its major assets will still be protected. This will allow you to enter and exit new ventures or diversify more easily.
Disadvantages
The main disadvantage of dual company structures is the additional complexities. Having two companies can be harder to establish and run. This is because, there is more administrative work to be carried out and more paperwork to be fulfilled.
Additionally, in a dual holding company you will not be completely protected. Circumstances involving misconduct, such as fraud, can still result in accountability of the holding company.
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