Question: What is an Ultimate Holding Company Structure?Answer:
An ultimate holding company is a company that has control over other companies (subsidiaries). While the subsidiary companies run the day-to-day operations, the ultimate holding company oversees the subsidiaries and holds all assets. This control is the main element of an ultimate holding company. Therefore, the ultimate holding company cannot be a subsidiary of another company. This article examines an ultimate holding company structure, its benefits and reporting requirements.
A subsidiary is a company under the control of another company. It runs the day-to-day operations and may incur liability. Under The Corporations Act 2001 (Cth) a company is a subsidiary if the other company:
- controls the composition of its board of directors;
- is in a position to cast, or control the casting of, more than 50% of the maximum votes at a shareholders meeting; and/or
- holds more than 50% of the issued share capital of the company.
Ultimate Holding Company Structure
An ultimate holding company is typically part of a tiered business structure. The ultimate holding company is always at the top level and the subsidiary companies are underneath it. The ultimate holding company owns the shares in the subsidiary companies, while individual shareholders hold the shares in the ultimate holding company. The ultimate holding company usually has no involvement in the day-to-day activities of the subsidiaries.
Benefits of an Ultimate Holding Company
Having an ultimate holding company structure comes with many benefits. A holding company holds business assets and licenses those assets to the subsidiary companies. Separating assets (which the holding company holds) from business operations and liabilities (which the subsidiary company holds) ensures that business assets are well protected.
Alternatively, it is possible to spread the assets of the business across the subsidiaries. Separating the assets and liabilities within the subsidiaries is important in the event of a claim against the business.
For example, if a person makes a complaint against the business, they can only receive benefits from the subsidiary they were dealing with, rather than the entire group of companies. Therefore, separating business assets by spreading them out across the various subsidiary companies ensures that assets receive better protection.
The Australian Securities and Investments Commission (ASIC) requires you to report your ultimate holding company at the time of formation and disclose its name on company records.
However, for reporting purposes, the ultimate holding company and the subsidiaries are one entity. Consequently, returns and statements must be made to ASIC on behalf of the group as a whole.
Having an ultimate holding company ensures your assets are protected. It separates your business assets from business operations and liabilities, therefore providing your business with greater protection. If you do establish such a company structure, you must notify and update ASIC of any changes.