A holding company is one of the several types of business structures. So, if you’re considering starting a holding company, we’ve pulled together the pros and cons to help you make an informed choice on whether it’s the best fit for you.
Firstly, what is a Holding Company?
A holding company is a type of business entity that owns other businesses. A parent company, sister firm, or subsidiary of another company could be the holding company.
A holding company is typically a company or LLC that doesn’t carry out any production, manufacturing, services, or other business operations. Its main function is to hold the majority of the stock or membership interests in other businesses.
So, what are the pros?
1. New opportunities
When you own a holding company, you can use the structure to grow into other markets. It has the potential to assist you in expanding your company and generating more revenue.
2. Tax benefits
There are numerous tax advantages available to a holding company. For instance, a holding company’s interest on loans used to finance its activities can be deducted. The taxes on a holding company’s profits can also be deferred.
3. Diversified business
An upside of holding companies is that they can help you diversify your business. Having a wide range of options available to diversify your business’s risk is key. Therefore it is then possible to offset losses if one business in your holding structure collapses.
4. Protection of assets
A holding company can help safeguard your financial interests – your assets are kept safe. It’s possible for your other businesses and assets to remain unaffected if one of your companies goes bankrupt.
5. It’s a breeze to raise money
Another benefit of holding companies is that they can assist you in raising money. For example, shares in a business owned by a holding company can be offered to the public. It helps the holding company raise money, but it also helps the individual businesses raise money for themselves.
What are the cons?
1. Complex structure
Holding companies have the drawback of having a complicated organisational structure. Trying to figure out how your company works and how to make business decisions can be challenging.
2. Limited liability
Limited liability protection is another downside of holding companies. It’s possible the rest of your holdings could be affected if one goes bankrupt.
3. It can be expensive
In addition, holding companies can be costly to establish up and operate. A number of taxes apply to holding companies, including the corporate income tax, capital gains tax, and stamp duty.
4. Lack of Authority
You may not have as much control over your businesses as you would if you owned them directly instead of via a holding company. It might be an issue if you wish to make any decisions for the company.
5. Involved management
To be successful, a holding company must be actively managed. Your holding company might collapse if you don’t properly manage it.
It’s essential to choose the most suitable company structure for you and your business. BK Plus are here to provide you with quality tax, advisory and accounting solutions to help you if you decide to establish a holding company.
Get in touch with us at email@example.com to talk to one of our experts.