Investment Holding Company

Key Takeaways:
  • Definition: A holding company is typically an LLC or limited partnership formed to own investments (stocks, bonds, real estate, IP, etc.) rather than directly running operations.
  • Structure: It usually controls subsidiaries (child companies) by holding voting stock, allowing influence over policies and management without engaging in daily business activities.
  • Asset Protection: By separating operating companies from asset-holding entities, liabilities incurred by operating businesses do not expose the holding company’s assets to creditors.
  • Types:
    • Investment Vehicle: Created for investors to pool and manage diverse assets.
    • Risk Management Tool: Used by larger corporations to shield valuable assets from business risks.
  • Wholly-Owned Subsidiaries: When a holding company owns 100% of another business, it appoints managers and oversees strategy, while daily operations remain separate.Examples of Assets Held: Real estate, brand names, trademarks, patents, copyrights, stocks, bonds, equity funds, and interests in other LLCs or partnerships.

Table of Contents

Managing a new business and growing an established business through a holding company structure has a proven track record of success. All over the world, successful companies and well know companies are actually holding companies, not operating companies. Generally, these holding companies will not perform any regular activities or functions and will not manage business operations. These holding companies perform the sole function of manage investments in securities. This structure can help protect investments, real estate, and family assets. The assets in a holding company can include:

  • Preferred Stocks
  • Common Stocks
  • Corporate Bonds
  • Interest in a private company

Typically, the holding company, usually formed as a Limited Partnership or Limited Liability Company (LLC), owns the voting stock in the child companies, enabling the parent to control the policies and management of the child, without being exposed to the liabilities of the child. Each of the child companies may hold a different asset or type of asset, including:

  • Bonds
  • Trademarks
  • Patents
  • Stocks of foreign companies
  • Song rights
  • Copyrights
  • Equity funds
  • Real estate
  • Other LLC interests
  • Limited partnerships
  • Brand names
  • Other assets which hold some value

Ultimately, the entities which hold assets like those listed above will be operated by an operating company that has the authority to enter into agreements that generate value for the holding company. In this way, the assets themselves are protected from creditor claims because if the operating company incurs some form of liability, the assets and holding company will bot be subject to the creditors claims.

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Two Forms of Holding Companies

There are two types of holding companies, one which serves as a vehicle for investors while the other serves as a risk management tool for a bigger corporation. When the holding company owns a business, it is termed as a wholly-owned subsidiary. The holding company will control the operations by appointing managers and will have the full authority to oversee the management. However, a holding company does not participate in the everyday operations of the businesses.

Conclusion

If you think a holding company structure might be an effective way to manage your assets, shield those assets from liability, and shield your personal assets from liability, contact us to schedule a consultation with our experienced Colorado attorneys through the contact link on our website.

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Author
Jonathan Feniak, Esq., MBA

Jonathan is admitted to practice law in Colorado and Wyoming. In this position, he helps business owners at nearly every level and in nearly every industry with asset protection, estate planning, and business formation. Beyond business owners, Jonathan also helps activists of all political persuasions to legally protect themselves.