Purpose of Holding Company
A holding company owns controlling shares or membership interests in other companies to form a corporate group. These subsidiaries operate independently while the holding company controls them. Holding companies provide limited liability protection by separating assets across entities.
Pros and Cons of Holding Company
Holding company structure:
- A holding company owns assets and controls other companies by owning shares but does not manage day-to-day operations.
- By placing assets and operations in different jurisdictions, holding companies allow tax savings.
- Gradually acquiring subsidiary shares allows easy expansion.
Protection and benefits:
- The holding structure ensures real estate, intellectual property, and other assets are protected if one subsidiary fails.
- Having no operations itself, a holding company has limited liability risk.
- It serves to centralize control over multiple entities, offering benefits like risk diversification, tax optimization, efficient capital allocation, and streamlined resource management.