What is Holding Company? Its Advantages & How to Register Holding Company
What is a Holding Company?
Meaning of holding company varies as per the context it is being used. However, as per the Companies Act, a company is a holding company, if:
- It holds the majority of the voting rights in its subsidiary company; or
- It is a member of its subsidiary company and holds the right to appoint or remove a majority of its board of directors.
In simpler words, a holding company does not produce any goods or services by itself; rather its main purpose is to own shares of other companies in order to form a corporate group and thus holding companies plays a vital role in reducing the risk of the owners. Also holding companies can have the ownership and control of a number of different companies.
The real purpose of its existence is to control another company, wherein later one could be a corporation, limited partnership or limited liability company. Apart from this, it can also own properties such as real estate, patents, trademarks, stocks and other assets and in case a business is owned 100% by a holding company, then it is termed as a wholly owned subsidiary.
By owning assets, holding companies allow the individuals to protect their personal assets and thus free them from the liability of debts, potential lawsuits and any other possible risks.
Holding companies are limited by shares and deals specifically with assets, investments, intellectual and real property and its management.
A very good example of a holding company is Berkshire Hathaway and its major holdings include Berkshire Hathaway Energy, Business Wire, Dairy Queen, Clayton Homes, Duracell, GEICO, Fruit of the Loom, RC Wiley Home Furnishings, Marmon Group etc. Apart from the above mentioned major holdings, Berkshire Hathaway also has minor holdings in companies such as Delta Airlines, Kinder Morgan, Apple, American Express, IBM, Goldman Sachs, The Coca-Cola Company etc.
Advantages of a Holding Company
Setting up a holding company has its own share of advantages, such as:
How to Register a Holding Company?
In order to register your company as a holding company, it has to fulfill below mentioned certain legal requirements, such as:
- The main company or the parent company must own more than 50% of voting rights in its subsidiary companies.
- The main company or the parent company is a member of its subsidiary companies and holds the right to fire or hire the managers or directors, if required.
- The main company or the parent company is a member of its subsidiary companies and in accordance with the agreement of shareholders; it holds the majority of voting rights in the subsidiary companies.
As per the Companies Act, process to register a holding company is somewhat similar to other private limited companies and thus while doing the same, you should have following details ready with us:
Once the above mentioned details are ready with you, you can submit your application to the Companies House online and if everything is in order, company will get registered within three working hours. A confirmation mail will be sent at your registered email address.
Although you can also go ahead and start with your application for registering your company as a holding company, however, it is highly advisable to go through a registered and authorized company formation agent.
One of the major decisions in setting up or registering a holding company is to finalize the right location for the same because one needs to consider the financial, logistical, business and operational requirements. Also to decide which jurisdiction your holding company will fall under, you would need to consider factors such as taxation of incoming dividends, corporate income tax on received dividends and taxation on ongoing dividends.
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