As the name suggests, holding companies are widely used to hold one or more personal, family and business assets. Family holding companies, business holding companies and special purpose holding companies can be used in asset structuring for a variety of legal and tax considerations. Here are some of the most common uses of holding companies.
Investment Holding Companies
Families are most protective with the holding of their investment portfolios and personal trading/brokerage accounts where capital is allocated to a dedicated Investment Holding Company and is managed either inhouse or with the help of asset managers.
Special Purpose Holding Companies
Often specific assets are acquired and held by Special Purpose Vehicles (SPVs) for risk management, exit strategy and tax considerations, at times to allow for external investment while ring fencing other valuable family holdings.
Asset Holding Companies
A holding company may be used to hold a variety of assets, but best practice may dictate the segregation of assets by type, by purpose or by use through the use of asset holding companies. For instance, real estate, private jets, yachts, art, antiques, and any high value assets tend to be segregated in a jet / yacht holding company, and art holdco, and so forth.
Real Estate Holding Companies
A real estate holding company or property holdco is a company used to acquire and hold immovable assets including residential and commercial real estate holdings. Often a real estate holding company is set up in the country where the property is situated. Alternatively, for legal, estate planning or tax planning reasons, a property holding company may be situated in an appropriate jurisdiction. Often property management companies are separate from real estate holding companies.
Business Holding Company
While personal or family holding companies are used to hold the family’s personal assets, holdings of a business nature can be grouped together in a business holding company. Often this bears the name of the specific business but holds assets such as intellectual property, plant and machinery and other business assets outside the business entity itself that bears the business’s operational risks.
Family Holding Company
It is common to see all the family’s asset holding entities grouped together in a family holding company that facilitates consolidated reporting and allows for liquidity pooling and financing. A family holdco allows the family office to present a strong well capitalised front on the negotiation table and deploys capital as required, but the family holding company is rarely the actual company that signs the deal when the ‘family office’ makes an acquisition. The family office represents and negotiates for the family, the family holding company deploys the capital, possibly signing on the letter of intent and the appropriate holding company actually acquires the asset or signs up the investment.
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