Berkshire Hathaway, which is owned by the very successful investor, Warren Buffet, is perhaps the most famous and successful holding company of all time. With its headquarters in Omaha, Nebraska, it holds stock in some of the biggest and most important companies around the world and its activities, especially its latest acquisitions and sales, are watched with great interest by countless people around the world.
While it’s unlikely that most people’s holding companies are ever going to be anywhere near as large or successful as Mr Buffet’s pride and joy, that doesn’t mean that they can’t enjoy many of the same benefits by forming Swiss holding companies of their own. Here’s a quick look at holding companies and how they may assist you and your business interests.
What is a Holding Company?
A holding company is a company that doesn’t produce products or services of its own, but is instead established with the sole intention of owning other companies, as well as assets such as property. However, a holding company doesn’t own small percentages of stock in companies as it controls the companies it owns by purchasing enough stock to receive voting rights. A holding company can, therefore, be seen as a company that exists solely to control another company.
Another term that you may have heard of but not fully understand is ‘wholly owned subsidiary’, which is a very important term regarding holding companies and their interests. A wholly owned subsidiary is a company that’s completely owned (100% owned) by the holding company. Most holding companies establish subsidiary companies (and not only wholly owned subsidiaries) as this is an effective way of further reducing the many financial and legal liabilities that are associated with company ownership.
Can Forming a Holding Company Benefit Me and My Business Interests?
Forming a holding company is a major decision to make and you’re advised to consult with a financial expert if you do choose to look into your options concerning the establishment of a holding company. So, how can forming a holding company benefit you and your business interests?
To a great extent that depends on your business interests, the companies you own, your intended acquisitions and your situation (not everyone’s situation is the same), however, holding companies (when properly structured and controlled) offer benefits such as:
- Reducing Financial and Legal Liability – With a holding company, only the companies owned are financially and legally liable for losses and legal action.
- Enhancing Ease of Raising Required Capital – The diversity of assets that holding companies own can make raising financial capital easier than for individual companies.
- Ability to Set Policies Across Subsidiaries – It’s possible to set corporate policies across all the subsidiaries without interfering with the way each subsidiary is managed.
Depending on your business interests, there could be many benefits afforded to you by establishing a holding company of your own. However, it’s essential to discuss matters with a financial expert with experience in incorporation and the forming of holding companies and have them assist you.