Holding Company Structure and Benefits
A holding company owns other businesses. An operating company conducts regular management of the business under the holding company’s control. The holding company usually owns all the shares in the operating company but doesn’t participate in day-to-day decision-making. This structure allows the holding company to own the business’ valuable assets.
An operating company enters into contracts, hires employees, and deals with customers. Your operating company is the face of the dual structure and is responsible for all the liabilities of your business. A key benefit is that the holding company can protect your business’ assets from any liabilities.
You can create a holding company to own the shares of your operating company. For instance, Tom manufactures and sells tyres through “Tom Tyres”. T Holdings own 100% shares of Tom Tyres and have no operations. Here T Holdings is a holding company, and Tom Tyres is an operating company.
Dual Company Structure Overview
If you want to set up a dual company structure, you need to understand the similarity and differences. This post will talk about the difference and how this structure can lower risk and protect vital assets.
Why Choose a Holding Company?
A holding company is primarily used for holding investments. In contrast to an operating company that manufactures products, a holding company typically exists to control other companies.
An operating company and a holding company often have the same owner. The operating company runs the business; the holding company owns the assets. It shields business assets from creditors.
Drawbacks of Holding Companies
Greater Complexity.
A holding company is typically a company or LLC that doesn’t carry out any production, manufacturing, services, or other business operations. Its main function is to hold the majority of the stock or membership interests in other businesses.
The main disadvantage is that holding companies can be complex and expensive to set up and run. This is because they need to comply with laws in different countries and file paperwork with various authorities.
It creates disadvantages for individual investors. It reduces the level of transparency available to the consumer. It is not always easy for holding companies to sell their shares. It forces a heavy reliance on a single income resource. It may create competing interests.