What Exactly Does A Holding Company Do?

What is known as a“holding company” is an organisation that has been created for the sole purpose of obtaining and administering a controlling interest in another company. There are different reasons why holding companies have been constructed, one of them as an activity that can be a major factor in the avoidance in a takeover type of situation. In other scenarios, this type of company organization might be made so as to more efficiently manage resources utilised in the operations of a particular business.

Holding Company

It is of importance not to forget that certain laws governing the creation of a holding company can vary from one nation to the next, and there are key reasons why Swiss company formation is now adays so popular. For this reason, the legal definition of this kind of company is usually somewhat different around the globe. For instance, in nearly all countries it is required that a holding company actually controls a minimum of 50% of the voting shares so as to be legally viable. And in some other territoriesit is required that the percentage of voting shares areeven higher.

Controlling Numbers and Thwarting a Takeover

The holding company can be established to function for a short period of time, oras part of a long-term management game plan. The short-term method is usually utilised when a company wants to avoid a hostile takeover attempt. With this type of scenario, a company basically purchases a controlling number of shares in the business that is under the danger of a takeover, and modifies them into shares of stock in a new holding company. The body that is attempting the takeover, will frequently have a limited amount of time to agree to allot the shares obtained as part of the takeover strategy, or see to it that those shares be rendered null and void after a set period of time.

After the takeover threat has been thwarted, the business can then continue to work under the protection of the holding company for an indefinite set of time. But, it is not unusual for the company to allow its shares for sale to the initial investors, which then effectively restores the business to its original condition. Government regulations that are applicable to the territory where the company is incorporated will decide when and how this procedure can then take place.

Wider Range of Services

In some other cases, a holding company is organised to operate for the long term. This method is common in areas such as the financial industry, where banks, for instance, are frequently run by holding companies. With the creation of a holding company, the parent body can provide a broader range of financial services than many banks in otherterritories are allowed to offer.

Due to the wide range of services being offered by different subsidiaries which are under the control of the company, a lot of governments do not view any conflict of interest, and approve this business model without any problems.

Holding companies certainly have a strong future!

Wilfred Hawkins

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