What Is an Ultimate Holding Company Structure?

An ultimate holding company structure is a company that is formed with the specific purpose of acquiring and holding shares in other subsidiary companies. The holding company has control over these other subsidiaries. While the subsidiary companies are responsible for running day-to-day operations, the ultimate holding company manages the subsidiaries and holds all the assets.

The same board of directors commonly manage both the holding company and its subsidiary companies. A centralised management structure promotes overall corporate governance and the business performance of the group as a whole. 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.

Subsidiary Companies

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;
• can cast, or control the casting of, more than 50% of the maximum votes at a shareholders meeting; or
• holds more than 50% of the issued share capital of the company.

Ultimate Holding Company Structure

Many business owners opt to incorporate holding companies to structure their business most effectively. 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. 

Additionally, the ultimate holding company owns the shares in the subsidiary companies, while individual shareholders hold the shares in the ultimate holding company. Also, 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 its subsidiary companies. Creating subsidiary companies and a holding company can compartmentalise business structures and provide risk protection benefits. 

Additionally, growing businesses or businesses in the process of scaling, often set up holding companies to streamline operations. Separating assets (which the holding company holds) from business operations and liabilities (which the subsidiary company holds) ensures that business assets are well protected.

Thus, holding companies often hold valuable assets on behalf of a subsidiary company as a separate entity. This greatly reduces the risk of losing assets if a subsidiary company becomes insolvent or suffers from underperformance.

Alternatively, it is possible to spread the assets of the business across subsidiaries. Separating the assets and liabilities within the subsidiaries is important in the event of a claim against the business.

Further, by incorporating a holding company, it is also possible to reduce the amount of tax that the holding company and subsidiary companies are jointly liable for. As an example, you can potentially structure your group to form a tax-sharing strategy. 

Reporting Requirements

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, you must make returns and statements to ASIC on behalf of the group as a whole.

Key Takeaways

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. 

For more information on the ultimate holding company structure or how to structure your business, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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