In this series, we review a range of common questions regarding the different types of companies. In this segment, we would like to address a very typical question: what is an ultimate holdings company?
What is an Ultimate Holdings Company?
To start off with a definition, an ultimate holdings company is a company that holds other subsidiary companies as assets and which itself is not a subsidiary of another company. An ultimate holdings company does not participate in the daily operations of its subsidiaries and is considered as separate entity. Many establish a holdings company for a variety of reasons, including for tax and liability minimisation purposes.
Typically, holdings companies are multi-level, that is, there is usually a chain of holdings companies as opposed to just one company holding another. At the top, is the ultimate holding company. To illustrate this concept, an example is given below.
- If Company A’s shares are held by individuals then they’re most likely not a holdings company.
- If Company A’s shares are held by Company B, whose shares are held beneficially by individuals then B is A’s holding company.
- If Company A’s shares are held by Company B and B is held by C, whose shares are held beneficially by individuals, the C is the ultimate holding company of A and B.
Subsidiaries: what you need to know
Section 117(mb) of the Corporations Act 2001 requires that companies report their ultimate holdings company to ASIC if they have one. Note, you must make sure that you select the right company. Again, the ultimate holdings company is not necessarily the company that has direct ownership of your shares because they may themselves be subsidiaries. We would definitely recommend that you seek further insight into company registration.
Why is this important?
Clarifying the company’s ultimate holdings company is necessary for matters of public interest because it would inform an investor’s understanding of where the source of control lies, which is relevant when they make investment decisions. For investors, indicators of control are not just simply share ownership, but extends to more pragmatic indicators, such as voting powers, control of board composition, etc.
To conclude, holdings companies utilise a simple framework that allows for tax and liability minimisation. For subsidiaries, it is important that they get the company registration process right in reporting the right entity as their ultimate holdings company. Once again, if you are in this process, we would recommend you getting in touch with some expert lawyers who can advise you further in company registration.
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