A holding company is a company that lawfully holds (owns) shares in other companies. Usually it is an LLC or LP that holds enough equity in another company to control and manage its operations and profits. As such, a holding company is often only used to control other business structures: it can be a corporation, LP, or LLC rather than manufacturing its own goods or offering services. Holding companies can also be used to own some type of property. Equity holdings are widely used as owners of real estate, intellectual property rights, stocks, and other assets. When a company is wholly owned by a holding company, it is known as a subsidiary.

Purpose of a holding company

One advantage of a holding company is that the holding company's assets are very well protected against losses, claims and other risks. In the event of the bankruptcy of one of the companies, the holding structure will result in a loss of capital and a decrease in net assets, but the creditors of the insolvent company will not be able to claim any assets of the holding company in the context of the dispute. For example, a large corporate structure can be organized in the form of a holding company with only one subsidiary in order to own its IP rights or, alternatively, to own real estate or equipment or to operate as a franchise company. By building such a complex multi-layered holding structure, each subsidiary bears quite limited financial and legal responsibility alongside the parent company itself, which makes them a good solution for asset protection. The creation of a holding company structure can also reduce tax liability, which can be achieved by incorporating some parts of the company into jurisdictions with reduced or exempt taxes.

Holdings also allow private persons to protect their income or assets. Instead of owning assets personally and bearing full responsibility for one’s debts, possible lawsuits and other risk factors, holding structure can hold the assets instead, thus, putting only holding company’s assets at steak.

Main activities of a holding company include supervising the subsidiary companies it owns. It can recruit and fire staff, if required, however, managers of the subsidiaries will be held responsible for their decisions regardless. Even though the parent company does not manage daily operations of the subsidiaries, the holding shareholders should have a picture of what is going on and how these subsidiary companies work in order to evaluate the performance and financial data.

Benefits of having a holding structure
In addition to everything previously mentioned, there are other major benefits of having a holding structure.

Full operational control over all subsidiaries:

A holding company has full supervision and control over directors’ board of the subsidiary. Parent company has the authority recruit staff, including directors.

Can be used to own property:

A holding company can hold different types of property, including, but not limited to real estate and intellectual property rights as well as other assets.

A holding company can not only hold, but also utilize and even pledge it’s property as well as invest it.

Risk minimization:

Holdings are often used to own assets, thus usually such structures are owners of numerous valuable assets. Holding corporate structure provides legal opportunity to protect these assets from claims, damages, lawsuits and other risks.

Holdings can be organized in several different ways. This allows quite flexible asset distribution between all subsidiaries.

Holdings company can own and use property:

Putting your company’s intellectual property rights or any other assets into a holding structure may be very beneficial in terms of legal protection against potential risks.

Flexibility of participation in risky investment projects:

A holding company participating in high-risk investment projects can protect shareholders of a daughter company.

Board of directors of each of the companies must act in the best interests of their company:

The parent company and its subsidiaries are recognized as separate legal entities each, each having separate board of directors. The board of directors is liable for the company’s activities as well as they are bound to act in the best interests of the represented business.

Tax planning solution:

The holding structure may be set up entirely in a different jurisdiction, which offers decreased or exempted taxes.

The holding can be quite a beneficial structure, especially considering that it often has lower tax rates than a trust would usually have applied.