A holding company is created to purchase and own shares of other various companies, which they can then take control of.
The main purpose of a holding company is to form its own corporate group. Rather than selling products or providing services directly, holding companies hold the controlling stock in a selection of other companies, instead.
Although holding companies have control of the companies they buy, they’re not actively involved in their subsidiaries’ day-to-day management or operations. To learn more about holding companies and their benefits, continue reading.
What Are Holding Companies Used for?
Holding companies are used to own and control assets in other companies. From reducing risk to providing protection, holding companies offer several benefits. Having a holding company in a group structure often offers more advantages than a company that stands alone.
The subsidiaries that holding companies control can be from a variety of different industries, ranging from the likes of tech to food. Each subsidiary will either be fully owned or partially owned by a holding company.
Can Holding Companies Purchase Other Companies?
Yes, holding companies can purchase other companies. Bringing a range of businesses together under a holding company offers numerous benefits. The overall group structure is best described in tiers – with the holding company being at the top and any companies that have been purchased sitting below (the subsidiaries).
Holding companies are created to own other companies, and they can have either full or partial ownership. Holding companies buy other companies so that they can gain control – which they can do even without full ownership.
Examples of Well-Known Holding Companies
You might be unaware that some popular companies that you know are actually holding companies.
As discussed, a holding company is there to control assets in other businesses. If you don’t know much about holding companies, it can be a little confusing to understand – but we’re here to help. Some popular holding companies you may have heard of include:
- Tesco plc
- Unilever plc
- BP plc
- Great Western Holdings
- Berkshire Hathaway
To help you better understand, Unilever for example, is well-known globally. As it’s a holding company, it holds various subsidiaries (companies), which are from a diverse range of industries – popular subsidiaries include Dove, Ben & Jerry’s, Persil, and Hellmanns, among many others.
Are There Different Types of Holding Companies?
Yes, there are different types of holding companies, such as pure, mixed, immediate, and intermediate. Each type of holding company falls into a different category – with some existing just to hold one other company, and others engaging in various other operations.
- Pure holding company – exists to own and control other companies without getting involved in any other business operations
- Mixed holding company – a mixed holding company has its own business operations while also dealing with several subsidiaries. Essentially, it acts as a normal operating company, along with aspects of a holding company
- Immediate holding company – owns other various companies, but is owned by another company themselves. Simply put, immediate holding companies are just owned by other holding companies
- Intermediate holding company – like immediate holding companies, intermediate companies are also subsidiaries themselves, usually to large corporations
Do Holding Companies Make Money?<?h2>
Yes, holding companies make money. All holding companies make different amounts of money – with some making more due to having an increased amount of subsidiaries. As holding companies are key shareholders of other companies, a large portion of their money will typically come from dividends. However, income can also come from:
- Interest on loans to subsidiaries
- Capital gains
- Equity
- Rental income
- Business operations (if applicable to the type of holding company)
The bottom line is that, yes, holding companies do make money. Many believe that holding companies don’t make much money, usually due to not producing goods or services themselves as their subsidiaries do. However, despite possible misconceptions, holding companies generate revenue in many different ways.
Do Holding Companies Pay Tax?
Yes, holding companies do pay tax. However, unlike some companies, holding companies benefit from some tax advantages. This makes holding companies attractive for various tax management strategies. Income made by holding companies is subject to corporation tax specifically.
Pros and Cons of a Holding Company
A holding company comes with several advantages and disadvantages. Let’s find out the main pros and cons that come with having a holding company.
Pros
- Protection for assets
- Easy to create
- Low risk
- More tax benefits
- Control over subsidiaries
Cons
- Requires efficient management
- More administrative (leading to higher costs)
- Prone to conflicts
- Faces more regulations and compliance
Do Holding Companies Benefit From Working With an Accountant?
Holding companies benefit greatly from working alongside an accountant, who can ensure the company is set up correctly and managed accordingly with efficient tax planning. Having access to the right support and advice while setting up a holding company is important.
Trusted accountants can help you evaluate your business’s needs to determine whether or not a holding company is the best type of structure. Although holding companies are more prone to tax benefits, it’s still vital to have expert tax support from experienced specialists in the field.
Paying your taxes promptly is important, and our accountants at DH Business Support can help you do that. Seeking tax advice while operating a holding company is key, and working with our accountants comes with many advantages.
If you’d like to learn more about how we can help holding companies in the UK, please contact us today. We look forward to speaking soon!