People often associate holding companies with multinational conglomerates. But in reality, anyone who has multiple assets and businesses, even home-based ones, should consider setting up a holding company. In short, a holding company will serve as an umbrella for the assets it owns, whether it’s shares of a company, property, trademarks, etc. The holding company itself does not conduct any operations except ownership. How exactly could you benefit from creating one?
They Limit Risk
One of the biggest advantages of holding companies is that they shelter subsidiaries from each other. If one of them is having troubles, it doesn’t have to affect the other ones.
For instance, if one of the subsidiaries ends up getting sued, only the assets belonging to this subsidiary will be accessible. And the holding company won’t be responsible either unless it guaranteed the subsidiary’s debts. Likewise, a subsidiary taking a risky decision and going bankrupt won’t affect other subsidiaries or the holding company. The holding company can simply sell off its share in the subsidiary.
More Control, Less Capital
Setting up a holding company also allows them to control more assets with less capital. A holding company could end up taking control of a company by simply owning more than 50% of its shares. This can even be lower if the ownership of a company is more diverse.
Tax Advantages
If a holding company does a consolidated tax return, the losses from one subsidiary can be used in order to offset the profits of another one. This can at the end of the day allow the holding company to save taxes on its assets as a whole.
Another great thing about a holding company is that subsidiaries can often hand out dividend payments to the holding company tax-free. The holding company can then use this capital to make additional investments or pay out stockholders.
Sharing of Assets and Skills
Another benefit of holding companies is that while every subsidiary gets to evolve on their own, they all form their own ecosystem, and might develop skills and a set of expertise that could help others.
For instance, one subsidiary may have mastered customer relationships and shares its resources with another subsidiary. A holding company may also have expertise that adds value to subsidiaries. Also, subsidiaries together have more financing power than if they were to stand on their own. Subsidiaries working in the same sector also can benefit from economies of scale and drive down costs by making larger conjoined purchases.
With their greater buying power, subsidiaries can now get better credit terms and prices from vendors. They can also pool their resources together to take on some bigger projects or work on expansion plans.
Conclusion
A holding company can be a great tool to limit liability, save taxes, and allow multiple companies to work independently under one umbrella. Make sure that you learn how they could help you and why you should consider setting one up immediately.
