Holding Company Benefits

Holding Company Benefits

What is a Holding Company?

A holding company does not generally engage in operations. Rather, it simply owns one or several other companies. This structure provides privacy, asset protection and savings on taxes. Given the company does not engage in operations it has little if any risk.

When a business is owned or controlled by a holding company it is referred to as a subsidiary. If this business is 100% owned or controlled by the holding company, it is referred to as a wholly owned subsidiary. Essentially, the holding company “holds” the assets of the subsidiary.

A holding company is sometimes called a parent company, with its subsidiaries being the children. The purpose of a holding company is to manage the assets of the separate companies, as it usually does not produce any goods or services of its own. Management of the subsidiaries should take place via a 3rd party or a company specially set up to act as a management company. This is because management entails inherent risks that are best separated from holding assets.

Expected Advantages

Holding companies offer several benefits which cannot be achieved with a single corporation or LLC. Business owners often find that the holding company structure produces a safe and manageable growth that streamlines operations and guards against risk. There are several other benefits that a holding company enjoys:

Asset Protection: A holding company allows subsidiaries to take on daily business operations, while holding the valuable business assets. These assets are protected from any creditors or other potential liabilities that the subsidiaries may incur.

Isolation of Risk: Thanks to this separation of the parent company from the child company, the risk of losing any valuable assets is minimized. If a subsidiary is under-performing or becomes insolvent, it is more difficult to pursue the parent company for legal responsibility.

Save on Taxes: It is only the holding company that must file a return, not the subsidiaries. This is referred to as a consolidated tax-filing. It means you do not need a filing for each company, just the parent. Additionally, it’s possible to set up your holding company in a way that reduces the amount of tax that your business must pay. In some cases, it may be possible to shift income to lower or tax-free jurisdictions.

Centralize Management: A holding company can implement a centralized management that oversees the holding company and its subsidiaries. With a cohesive strategy in place, the directors can maximize company performance and growth. Many also find that the subsidiary structure of the holding company offers greater flexibility for investment, growth, and development.

Holding Company Structure

While a holding company does not engage in its own operations, it often owns subsidiaries that do. The holding company (often referred to as a parent company) oversees and controls the operations of the subsidiaries (referred to as its child companies).

Meanwhile, the parent company enjoys the safeguards and protections that the holding company structure provides. This is one of the reasons why holding companies are often used by large corporations that have business in multiple industries. The structure provides the ability to oversee and control, while offering isolation and protection to each subsidiary.

A second type of holding company structure is one that has sister companies in place of subsidiaries. Sister companies are owned by the same parent company, but each operates independently of the other. In some cases, the only thing the sister companies will have in common is their parent company.

Who Should Use a Holding Company?

Holding companies exist for a number of reasons. Some of the most common endeavors associated with owning holding companies are:

  • Real Estate: If an investor owns or rents several properties, a holding company can serve as a great method for reducing risk by isolating the operations of property management from the actual physical real estate. This can greatly reduce the risk of loss from any possible lawsuit.
  • Family Holdings: Families may decide to use a holding company in order to consolidate their tax return filings, as subsidiaries are not required to file a return. This helps to simplify tax filings and also with managing the family’s interests in their companies and assets.
  • Multiple Businesses: Any scenario in which a company operates in multiple industries, especially those that are inherently risky, a holding company can help protect its valuable assets and manage risk.
  • E-commerce: An e-commerce business with multiple lines might want to consider a holding company to isolate riskier product lines and devote specific focus to the individual needs of each line. In some cases, a company will use a holding company to form another entity that competes in the same market, while shielding this information from its competitors.
  • Trademarks, Patents, and Copyrights: A holding company can be used to protect your intellectual property from any issues that may plague your company. It is also useful in terms of licensing the intellectual property and exhibiting its value to third parties.

If you are interested in the tax benefits that a Florida LLC might be able to provide, enlist the services of an attorney or CPA. An expert can assist with your legal and tax classifications and ensure you are receiving every advantage and opportunity that an LLC can provide both you and your company.

A holding company can offer you and your company several benefits. From asset protection to saving on taxes and much more. While the implementation process can be complex, enlisting the help of a formation service will ensure that it is done correctly, so that you can enjoy putting these benefits to use right away.