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What Is an Equity Holding Company

But even for much smaller businesses, it`s important to separate the records, assets, liabilities, and characteristics of each business. Otherwise, the risk of a court piercing the veil and allowing a creditor to reach assets beyond the debtor`s subsidiary may be increased. Instead, an investment holding company generates income by selecting, acquiring, and managing a portfolio of fixed assets that offers a return on dividends, interest, capital gains, unrealized appreciation/depreciation, and/or lease or lease payments. This return is then attributed to investors based on their individual stake in the investment holding company. A holding structure is popular with large companies with several business units. Take, for example, a large company that manufactures and sells various consumer goods, including hair care products, skin care products, baby care products and others. Instead of using a company with different lines of business, that company could be structured with a holding company and several subsidiaries. Each business unit could be operated as a separate subsidiary in which the holding company holds a majority interest. The Company`s brands, devices and properties may also be placed in separate subsidiaries, with operating companies paying for the use of the Marks, equipment rental and rental of their offices. Asset protection – Your investment activities may expose you to liability related to a particular investment. An investment holding company protects its owner from personal liability and exposure to investment risks. For example, if you have invested in rental properties, you can be sued if someone gets injured on the property.

If this happens and you own the property on your own behalf, you may be held personally liable and required to compensate the injured party. On the other hand, if the property belongs to an investment holding company that you own, only the investment holding company and the assets it owns can be held liable to the aggrieved party, not you and your personal assets. A holding company is a company that does not perform transactions, undertakings or other active tasks for itself. Instead, it exists for the purpose of owning assets. For each new investment, a new subsidiary can be created. By definition, a holding company is a company incorporated with the intention of acquiring shares in other companies. Holding companies are particularly popular in India in two forms – (1) groups of companies that operate several different companies; and (2) private equity funds looking to create platforms to consolidate multiple assets in specific sectors or industries where there are not many companies of the required size and scale. Less talked about, but just as important is the choice of the registered agent.

By using a single operating company, these additional compliance obligations per company and the associated costs are avoided. The management of the holding company is also responsible for deciding where to invest their money. In such a case, if one of the subsidiaries suffers losses, these will be offset by the profits of the other subsidiaries. In addition, the net effect of filing a consolidated statement is a reduction in the tax payable. Holding companies are used by companies of all sizes and in all sectors. Many of the most well-known listed companies are actually holding companies and many people who buy their shares don`t even know they are investing in a holding company and not in the operating company. The holding company`s consolidated revenue, which is larger than that of the independent companies in its portfolio, makes it more attractive for stock ipOs, an important way for private equity firms to sell their investments.

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