A Holding Company is a Super Entity
A holding company is a business entity (parent corporation, limited liability, company or limited partnership) that has no operations itself but is a vehicle for owning other companies. It owns assets in the form of companies (Subsidiaries) or shares of other companies, hedge funds, real estate, trademarks, patents or units in partnerships.
This style of organization allows for powerful advantages of all companies combined within its ownership. It is a structure that brings less unnecessary risks and maximizes profits.
Points of Power
A holding company is a mega corporation that directs and manages multiple assets and companies that may be of multiple domains. All can be used in support of one another for maximum strength. For example, a holding company may encompass several groups of companies such as in the industrial sector, trading, services, engineering, and hospitality sector. It may take on construction projects of immense size, like the construction of an international hotel, and use all available companies from start to finish. From the design process and planning, excavation and ground work, engineering, steel, electrical, plumbing, exterior and interior finishes. As a whole company it has wider finances and resources that can be shared across the board at minimal costs.
Tax Reduction, Better Profits
A massive plus of a holding company is the reduction of taxes. This smart advantage means dividends may be directly paid to shareholders and the mega company itself without being taxed as it is considered the company of ownership of subsidiaries, essentially the same company. Once the individual companies are taxed, the process ends there. It leaves the holding company with unscathed profits.
Mega Company, Mega Backing
The overall financial backing of a holding company for the subsidiaries is another potent advantage. It is a form of guarantee that allows for loans for smaller companies that they may not be able to achieve by themselves. Subsidiaries in the same industry can also combine their buying power to extract better prices from vendors and better credit terms. It is a superior guarantor. It provides operations capital without risk to the holding company with the allowance of a higher purchasing power, financing terms and leads to the ability to invest in much larger projects.
The genius of this business structure comes with minimal risk as liability lies only in the initial finances paid, not the following incurred losses by subsidiaries. This extends to any troubles that may cross into legal issues, tax liabilities, lawsuits etc… It is a protection method; the holding company does not deal with any negative repercussions that may be brought on by a subsidiary who runs its own operations. This is a powerful advantage which makes a holding company virtually untouchable.
Resource and Skill Sharing
Another valuable point of power is the ability to share the strengths and technical know-how from any of its businesses from within. The different companies can be used to share vital resources necessary. What is meant by that is if a subsidiary named company X has high level customer service relationships they can be “transferred” for use by another subsidiary company Y in order to bring up business through the use of those relationships. A marketing subsidiary may be used for consultancy or marketing of its “siblings”, a transportation company can supply a sibling concrete factory, and so on and so forth.