Business magnates use it. Small family businesses use it and you can use it too. The structural advantages of Holding Structures (most commonly known as Holding Companies) can help you manage multiple services, products and even businesses under one Holding Company. Here’s the break down on Holding Companies.
A Holding Company is the mother ship. It holds various businesses within one corporate entity. That means, it’s the perfect way to structure various services or products within one corporate group without having to keep them all within one company.
Thousands of South Africans use a holding structure to setup their business. This structure can limit financial risk and assist you with branching out to new industries. Click here to read more.
Why choose a Holding Company?
A Holding Company is perfect for entrepreneurs looking to branch out to new business prospects; prospects that don’t quite fit into their existing companies.
It’s also great for business owners who want to compartmentalize different departments, services or products.
Actually, anyone looking to limit the financial risk of having various trades within one company can opt for a holding company to keep risk factors limited to specific divisions.
A Holding Company also makes it less risky to team up with business partners in new ventures; you won’t have to expose your existing company to the risk of failure your new business poses.
How does a Holding Company work?
In essence a Holding Company is a parent company, which owns various businesses (or at least 30% of their issued shares). A Holding Companies doesn’t trade in services or products itself, it merely has ownership in various companies that do, holding them together in one corporate entity.
Interestingly, Investment Holding Companies use this holding structure to attain shares of various promising or profitable businesses within one Investment Company. However, it’s perfect for the everyday entrepreneur too.
What is an example of a Holding Company?
Let say, David has a booming home painting company in Randburg called NuHome Painting. His nephew, George, has worked at renovations businesses before, building custom cupboards, in the same area.
David would like to branch out business to home renovations in Pretoria, starting a venture with his skilled nephew. However, he doesn’t want to put his current company at risk, if the family venture goes sour.
So David registers a Holding Company called NuHome Holdings to facilitate this expansion.
NuHome Holdings acts as a parent company to both his established painting business and his newly registered Renovation Company (which he shares with his nephew). David’s Home Holdings owns 100% of the shares of his established business and 50% of his shared business.
This way these two businesses operate completely independent to one another within one larger entity owned by David, plus David and George have the opportunity to generate a new company name, NuHome Renovations, tailored to their new service, rather than automatically using David’s existing business to trade.
This allows NuHome Renovations a better chance at winning Contracts and Tenders relating to renovation jobs. The same goes for NuHome Painting regarding painting work.
Additionally, David can venture into brand new industries at any time, like selling beverages for instance, simply by registering a new company owned by his Holdings Company.
What are the disadvantages?
The paperwork and start-up costs and will be slightly higher. You will have to register every business you’d like to run as a Subsidiary Company to your Holding Company.
Also, if the Subsidiary Companies to your Holding Company have various owners, it can be difficult to close a Holding Company, as there are multiple owners to consult.
However, if this business structure might help you better manage various parts of your business or numerous Companies, the long-term benefits are worth considering.
If you’d like to register a Holding Company, CLICK HERE to look at our great Holding Package.