What Is a Holding Company?

A holding company is a parent company that owns shares and enough voting stock in another company to control its management and policies. These controlled companies are known as subsidiaries and the parent company own assets that the subsidiaries use. Accordingly, holding companies develop business structure and mitigate against potential risks.

Here are some useful points to know about holding companies and the benefits they may provide.

Purpose

The purpose of a holding company is to control another company rather than engage in any business endeavours. In doing so, holding companies provide benefits of limiting liability and structuring control. Moreover, a holding company may also exist to own certain property like real estate, intellectual property, stock or other equity. By having no business operation, holding companies aim to hold and bring value to an investment. In this manner, holding companies permit investors to reach multiple sectors of the business and invest money appropriately.

Benefits

The establishing of a holding company protects the company from any losses. A common example of the benefit of a holding company is when one of its subsidiaries goes bankrupt. By individually owning real estate, intellectual property and operating equipment, legal and financial liability is split. In this way, the holding company can lease equipment to a subsidiary so if a subsidiary is under legal scrutiny it has no assets and may be declared bankrupt. Accordingly, you can establish a new subsidiary and re-lease the equipment from the holding company.

In this way, the holding company owns the assets so they are unreachable by creditors. This also protects the personal assets of members in the corporation, as the holding company is the owner of the assets rather than the individual. Similarly, this structure may also allow for limited collective tax liability.

As a holding company oversees its subsidiaries it provides for centralised control. The holding company can fire and hire managers as it sees fits but does not take on the liability of those managers in their operation at the subsidiary company. This retains equitable interest in the holding company while being able to manage the subsidiaries.

Conclusion

A holding company can develop your business by streamlining operation, managing subsidiary companies and minimising financial risks. Additionally, you should consult a business lawyer as the evolution of subsidiary companies under a holding company may become difficult to manage and bring on certain organisational issues.

Need more information? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace. 

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