Advantages of Holding Company Structures for Owner-Operated Business
Some of the world's largest companies operate under holding company structures. For owner-operated businesses, the holding company structure also offers key advantages over holding assets and operations in a single company.
Holding Company Structure
At its simplest, a holding company owns all of the shares or units of one or more subsidiaries. Individuals or their trusts then own the shares of the holding company itself. Operationally, the subsidiaries and the holding company act as separate companies. For example, each subsidiary would have separate bank accounts and ledgers and the subsidiaries would enter into agreements with each other (e.g., the operating subsidiary would lease assets from its sister subsidiary). Separate subsidiaries may own physical assets, intangible assets, or real estate. One or more subsidiaries may run or manage the company's operations.
Advantages
This structure would provide the company with important advantages over operating under one business entity. These advantages include the following:
Some of the world's largest companies operate under holding company structures. For owner-operated businesses, the holding company structure also offers key advantages over holding assets and operations in a single company.
Holding Company Structure
At its simplest, a holding company owns all of the shares or units of one or more subsidiaries. Individuals or their trusts then own the shares of the holding company itself. Operationally, the subsidiaries and the holding company act as separate companies. For example, each subsidiary would have separate bank accounts and ledgers and the subsidiaries would enter into agreements with each other (e.g., the operating subsidiary would lease assets from its sister subsidiary). Separate subsidiaries may own physical assets, intangible assets, or real estate. One or more subsidiaries may run or manage the company's operations.
Advantages
This structure would provide the company with important advantages over operating under one business entity. These advantages include the following:
- Risk Management
Assets are segregated into separate companies. When properly administered, product-liability claims can be limited to a single subsidiary's assets. Riskier operations, such as trucking, can be similarly segregated. - Tax Advantages
100% owned subsidiaries can be treated as disregarded entities for tax purposes. This can mean that no separate tax returns need be filed, and yet corporate and limited liability (LLC-type) protections can be maintained for business purposes. - Ease of Transfer/Confidentiality
The structure provides for easier sale of a product or service line. One line may be sold by selling the subsidiary. Without the holding company structure, a sale may require more extensive due diligence for the buyer or may reveal trade secrets unrelated to the product or service line. - Licensing
Licensing of patents and other intellectual property can be broken down by industry or territory. In this manner, such property could be licensed for multiple purposes to different entities.