What is a Holding Company – Purpose and Benefits

The biggest challenge of multi-tiered, high-value businesses is lack of control, tax liability, and asset protection in the face of liability litigation. Having a holding structure is an effective way of diversifying your business portfolio with centralized control, limiting liability and risk management. It is a powerful tool for businesses that want to expand their reach and diversify globally. However, before you choose to have an investment holding company for your organization, it is crucial to know how it functions and its key purpose for business growth and development.

Holding Company – Key Functions and Benefits

A holding company is one that holds ownership inequities, investments, and properties of another company, typically called as a subsidiary. They own "controlling interest" in the subsidiary’s shares of stock, intangible assets, securities, real estate, or anything that holds value to the business. However, the holding company only owns control over the subsidiary and its assets; they do not involve in core business operations such as manufacturing products or offering services to consumers. It only functions as a parent company with multiple subsidiaries, investments or assets under its umbrella.

Organizations that have multiple businesses, investments or assets under their portfolio can significantly benefit from a holding structure. Since a holding company functions as centralized control, it is a smart way of diversifying risks associated with owning and managing diverse businesses, assets, and properties. In the event of unforeseen risks such as bankruptcy or inability to repay the creditors due to financial instability, your assets and investments owned by the holding company will be protected from being seized in case your business is sued. The assets and properties can then again be leased to your company to have complete ownership and management under the corporate group structure. Thus, limiting liability is one of the key purposes of any holding company like Suisse Holding.

One of the biggest advantages of having a group structure is that the holding company only owns control over its subsidiaries and assets; they do not interfere in core business operations or management structure of the company. They only have an executive management team or an asset management company to keep centralized control over businesses, assets and investment portfolios. This facilitates improved productivity and streamlined operations in a cost-effective manner.

Financial flexibility is another integral purpose of having a holding structure. When multiple businesses operate under a single holding company such as SUISSE HOLDING, it aids in better flexibility in terms of reinvesting or allocating capital across multiple businesses and investments. Subsidiaries can also avail attractive financing terms being in a corporate group than what they would otherwise get as a stand-alone corporate entity. The dividends and profit-earnings also go to the holding company directly and not to the shareholders. This is an effective way of leveraging the benefits of deferred tax because any dividend going to a holding structure is typically tax-free in many countries.

A holding company comes with several key advantages to any company, especially the ones having several business portfolio or assets under them. However, always seek expert consultation before you choose to have a holding structure for your company.

SUISSE HOLDING LIMITED is licensed in Ras Al Khaimah, one of the seven Emirates with its registered office in Dubai, United Arab Emirates. Its core objects are holding of shares in other companies, holding and managing real estate property.