Holding Company?

[Jack Wild]

Hello,

I'm just here to ask a few questions as I think my mind is completely baffled:

1) What exactly does a 'Holding Company' do?
2) What do people mean when they say a Holding Company owns investments?
3) How would I go about starting one up? (Here's what I have in my head, but I think it's wrong)

My view:
I believe that I would ask the bank for a loan or save up money from a previous job to get the legal papers for my Holding Company and start up the business. I would then invest in businesses that seem to have an ever increasing profit. I believe that I would ask for a % of the business, a share of that business, and I earn a % of whatever that business makes in a month etc.

4) If the above view isn't right, where does a Holding Company get its money from?

5) As a Holding Company, are you expected to build an extra business, then sell its shares off to make more money than it costed to build that business, but still receive profit from the business that you made?

6) If number 5 is correct. Would I then build another business and repeat the step, or would I invest into a more profitable company, ask for shares in that company and a % of their income?

I'm not sure if this is as clear as can be, I just can't wrap my head around the 'Holding Company' concept.

Many regards,

Jack Wild.

 

[john1989]

Why would you consider 3 without knowing 1 and 2?

 

[PipeTen-Carl]

1. A holding company in my terms, is generally one which doesn't really trade with the public or third parties. It's purpose is to hold the assets for the benefits of taxation or risk separation.

So assume you have a business which trades B2B or publicly buying and selling widgets. Lets assume your widgets are widely popular and you make enough money you want to buy a commercial property to make or store those widgets. You can purchase that property with your Widget Ltd, but then if one of your widgets goes bad and somebody takes you to court, then there is a risk that the compensation against Widget Ltd might exceed what Widget Ltd can afford in cash, so then the property asset of Widget Ltd is at risk (of being sold to cover the debt). If however when buying the property Widget Ltd setup Property Ltd and rented the space to Widget Ltd, then to some degree even if Widget Ltd gets wiped out due to failure or claim you can hang on to Property Ltd and just wind up Widget Ltd. So if you hold your assets (physical or IP) within a holding company, you reduce your risk / liability.

2. They mean they have a company, which they use of the purposes of investment or holding assets. This can be for risk purposes as outlined or it can be taxation purposes like entrepreneurs rate relief or spreading taxation with spouses. It generally means they do not trade with the public from it.

 

[Jack Wild]

Why would you consider 3 without knowing 1 and 2?

I suppose I left them questions a bit short. I've read about what one is, but there are some things that I can't get my head around. So I suppose it's what your people's definitions are of a 'Holding Company'. How you would describe what exactly it is.

 

[ethical PR]

Pipe Carl Ten has already described this for you.

 

[john1989]

To qualify as a holding company, under theCompanies Act 2006 (s.159), it states that a company will be considered the subsidiary of a holding company in the following circumstances:

• The parent company holds greater than 50% of the voting rights in the subsidiary.
• The parent company is a member of the subsidiary and has the right to appoint or remove a majority of its board of directors.
• The parent company is a member of the subsidiary and, in accordance with an agreement with other shareholders, it alone controls a majority of the voting rights in the subsidiary.

A holding company is usually a company that doesn't sell goods or offer services. It is a company that owns shares in other companies to form a corporate group structure, with the holding company at the top of the corporate tree.

There are many reasons why a holding company would be created. Some of the reasons I can think of are:-

1. Ensure full control of its subsidiaries.
2. Tax advantages surrounding share disposals, dividends, withholding taxes and VAT.
3. Risk

I'm sure there are many more advantages than that.

Forming a group is not to be taken lightly, and I would highly recommend taking professional advice if you are thinking of going down that road.

 

[Jack Wild]

So, would I start up just a Holding Company on its own and buy shares of various companies to make them my subsidiary company? If so, does the profit then come from the fact that a Holding Company gets a % of the subsidiary companies total revenue?

Or

Would it be best to have a small company at the side of my own Holding Company, sell the shares of that small company off on the stock market then invest that money elsewhere?

I think what I'm most confused about is where a Holding Company gets its income from.

Regards,

Jack Wild

 

[john1989]

If you start a holding company that has no shares in any other company, it's not really a holding company, is it?

Holding company income - usually dividends from its subsidiaries.

 

[PipeTen-Carl]

A holding company gets its money from what is invested into it, what is held within it and the profits it makes from its activities.

Based on your age and direction of this conversation, you don't want a holding company.

 

[john1989]

A holding company gets its money from what is invested into it, what is held within it and the profits it makes from its activities.

Based on your age and direction of this conversation, you don't want a holding company.

Bugger.

I've just realised I've wasted time giving a detailed response for no apparent reason.

 

[Jack Wild]

I think I'm getting it now.

Would you recommend then, getting a job and saving the money. Then buying shares out of cheaper businesses, making them subsidiary's then work your way up until you can buy more expensive shares from more well knows companies?

Or

Would it be best to get loans from a bank to kickstart it all off?

 

[john1989]

Given your age, I would recommend getting an education, enjoying your younger years, get a job for a bit. Then in a few years time, if you wish to own your own company, go for it ... usually in a field you are experienced and / or qualified in.

There are people that strive to get one company making decent profits. You're 17 and already talking about a group structure.

 

[ethical PR]

How long do you think it would take you to save the money you estimate you would need while working to set up a holding company? What do you know about investing in companies?

OOps just seen you are 17.

 

[Jack Wild]

Thank you for all of your comments, I know it's a bit weird for a 17 year old to be talking about all of this. But I have, for a while, wanted to own a business, but never go into a particular field and that was when I found out about a Holding Company.

Again thank you for all of your comments and explanations. I think I have the gist of it now. I'll probably research into the best ways to go about starting things, but I won't go for them yet. I'll enjoy my childhood.

Many regards,

Jack.

 

[Maxwell83]

SImple answer - if you have to ask what a holding company is, you probably don't need one!

It's a device used to solve a particular range of problems, and unless you have one of those problems, you don't need to worry about the solution yet.

If you had said for example "I have a successful ltd company but want to start a new, riskier venture without risking the successful company, but I want to buy a property that both ventures would be run from" the ensuing responses may have involved the use of a holding company, and in that context it would all become clear.

 

[Mark T Jones]

I think I'm getting it now.

Would you recommend then, getting a job and saving the money. Then buying shares out of cheaper businesses, making them subsidiary's then work your way up until you can buy more expensive shares from more well knows companies?

Or

Would it be best to get loans from a bank to kickstart it all off?

Why would a company sell you shares?

Why would a bank lend you money?

Keep having thoughts, but concentrate on businesses that you can build and run