In Short
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Protect business assets: A holding company structure can shield valuable assets like IP and property from trading risks.
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Streamline control: Centralised management allows easier decision-making and business growth.
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Improve investor appeal: Holding companies can offer better governance and tax benefits.
Tips for Businesses
If your business owns valuable assets or is planning to expand, a holding company may be worth considering. It can help reduce risk, support long-term growth, and make your business more attractive to investors. Speak to a lawyer to ensure the structure suits your goals.
When considering different structuring options for your business, you may have heard of the idea of having a holding company. However, it is important to understand what a holding company is and how it can benefit your business. Depending on the size and structure of your business, a holding company can provide some real advantages, these include:
- reducing risk;
- providing centralised corporate control; and
- offering a flexible structure for growth.
This article explains what a holding company is and outlines seven different ways it can benefit your business.
What is a Holding Company?
A holding company is a company created to buy and own the shares of other companies. These other companies are known as the subsidiaries of the holding company. The holding company typically does not produce goods or services or participate in the day-to-day operations of the business. Instead, it often owns assets that subsidiary companies use.
Business owners typically consider establishing a holding company and one or more subsidiaries to help structure their business as it expands. Indeed, this is because the holding company can provide greater safeguards against risks and streamline operations for a business that is still growing and diversifying.
7 Benefits of a Holding Company
The following section unpacks the advantages of a holding company and how this business structure could be suitable and advantageous for your business.
1. Protect Assets
A holding company can hold the valuable assets of a business, including:
- property;
- intellectual property; and
- equipment.
The subsidiaries then take on the daily operations of the business and its trading responsibilities. Therefore, the valuable assets held by the holding company are protected from creditors and other liabilities that the operating companies might incur.
2. Reduce Risk
Where a holding company holds valuable assets and is an entity separate from the operating companies, it minimises the risk of losing those assets if the operating company performs poorly or becomes insolvent.
3. Minimise Tax
A holding company can be established to minimise the tax burden that the group as a whole incurs.
4. Central Control
Typically, the management of the holding company and its subsidiary companies is overseen by the directors of the holding company. Therefore, this provides a cohesive and centralised management structure that allows the holding company to maximise its performance and growth.
5. Concentrate Property Assets
As the central holder of property assets, the holding company can deal with those assets for the benefit of the group as a whole. Subsequently, trading companies do not need to take the risk and time to do so.
6. Flexibility for Growth and Development
Additionally, another benefit of a holding company is that it allows for greater flexibility. Specifically, having the valuable assets held by the holding company allows the group to:
- diversify more efficiently;
- invest in new ventures; and
- exit ventures if needed.
The operating companies can take these steps without risk to the holding company and the group’s assets. Moreover, a holding company gives greater power to the group and its subsidiaries to invest in larger projects.
7. Succession Planning
Finally, a holding company helps with succession planning. This is because it has a centralised board of directors. Therefore, it can ensure continuity of the business when key people from the operating companies leave.
Continue reading this article below the formAdditional Considerations
While holding companies offer many advantages, they also come with complexity:
- Legal compliance: Each entity still has reporting and governance obligations.
- Costs: Running multiple companies involves accounting, legal, and compliance fees.
- Complexity in Management: Coordinating activities across multiple entities can be complex.
- Resource Allocation: Balancing resource distribution between subsidiaries requires careful planning. Implementing a group-wide resource planning system can aid in efficient allocation.
This guide will help you to understand your corporate governance responsibilities, including the decision-making processes.
Key Takeaways
A holding company is a company created to buy and own the shares of subsidiaries. While holding companies do not produce their own goods or services, they often own assets that subsidiary companies use. Holding companies and subsidiary companies are useful for business owners to structure a growing business. Indeed, this is because the holding company can provide greater safeguards against risks and streamline operations for a business owner. By doing so, holding companies can promote the growth of your business while minimising some of the risks that come with this growth.
Specifically, you can gain benefits in:
- the operation of your company;
- tax minimisation; and
- financial advantages.
Separating property assets and using the buying power of a larger group can help a business grow creatively and flexibly. If you have any questions about holding companies, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A holding company is a company that buys and owns the shares of other companies. These other companies are subsidiaries of the holding company.
The holding company can own assets like property and equipment. Therefore, if the subsidiary incurs any debts, this means that it cannot pay the assets owned by the holding company. It also means that it will be protected from creditors.
The holding company controls its management and its subsidiary companies. This provides a cohesive and centralised management structure.
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