In this article, we’re answering “What is a holding company?” In short, it is an entity that holds assets (often shares in other corporations) on behalf of the beneficial owner.
That said, there are important nuances to consider, which we discuss below. Additionally, we’ll be answering the most common questions we get asked by our members.
Not surprisingly, this article is part of our free series on corporate banking solutions and features around the world, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Holding Company?
- Who Is Eligible for a Holding Company?
- What Are the Benefits of Holding Companies?
- How to Set Up a Holding Company
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Holding Company?
A holding company generally refers to a parent company that holds shares in subsidiary companies or holds other assets on behalf of the Ultimate Beneficial Owner (UBO). The holding company structure can be registered onshore (e.g. the United States) or offshore (e.g. the British Virgin Islands).
Generally speaking, there are a few different types of holding companies that individuals can register. However, the role of a holding company is usually the same, which is to hold assets on behalf of the beneficiary.
Holding company advantages and disadvantages often relate to the jurisdiction where they are registered. The choice of jurisdiction for registering a holding company often includes consideration of holding company taxation, governance, privacy, and other related regulations.
Just to be clear, the main difference between a holding company vs. a subsidiary company is that the holding company will own the shares of the subsidiary on behalf of the beneficial owner.
If you are looking into holding company formation for the first time, we’ll share a few holding company examples below so you can consider popular jurisdictions for registration.
That said, before choosing a jurisdiction, we strongly encourage you to consider the banking options that will be available to your entity. Otherwise, you may end up with an expensive Holdco that is unable to open a bank account.
If you would like to get our team’s thoughts on this, you can join GlobalBanks IQ and unlock detailed reports about opening international and offshore accounts for offshore Holdcos right now.
Who Is Eligible for a Holding Company?
Anyone who is able to meet the regulatory and legal requirements to register a holding company is eligible to do so. That said, registration agents are required to onboard clients through a compliance process, which looks into a person’s profile, business activities, and any related licensing requirements.
Additionally, there are costs associated with registering a Holdco. So, anyone that plans on setting up this kind of corporate structure needs to be able to pay both the initial registration fees as well as the ongoing maintenance fees, which are usually paid annually.
What Are the Benefits of Holding Companies?
There are a number of benefits of holding companies, ranging from tax efficiency to asset protection, risk management to privacy, and succession planning to estate management.
In other words, there is no single benefit that drives individuals to structure a Holdco. In fact, in many instances, there may be multiple factors that compel someone to register a Holdco in order to hold their assets.
Note: another benefit of holding companies is the fact they can use accounts receivable to manage cash flow, make projections, assess working capital, and much more.
Here is a closer look at the benefits that you might be able to capture when structuring the right Holdco for your situation.
- Asset protection
- Risk management
- Tax efficiency
- Enhanced privacy
- Streamlined estate planning
- Increased banking options
- Stronger corporate image
- Better investment attractiveness
- And more
Of course, which benefits you can access depend both on the type of holding company you structure as well as the jurisdiction where you choose to register. With this in mind, let’s take a look at how to set up a Holdco and a few example jurisdictions.
How to Set Up a Holding Company
The process to set up a holding company involves several important steps (outlined above). While these steps will vary slightly depending on where you decide to register your company, they will be similar in most jurisdictions.
With this in mind, a few common jurisdictions that are used to structure Holdcos include the British Virgin Islands, Hong Kong, Cyprus, Nevis, Panama, the United States, and elsewhere.
Of course, holding companies registered in certain jurisdictions will have an easier time opening bank accounts. On the other hand, other jurisdictions may be more cost-effective. And, depending on where the assets being held by the company are located, it can make sense to register in a completely different jurisdiction altogether.
If you are trying to decide where to register, you may want to consult a professional that fully understands your situation and is able to advise you on the best jurisdictions for your requirements.
Here is a look at the requirements for setting up a Holdco that you can expect in most jurisdictions.
Requirements for Setting Up Holding Companies
- Company registration with the local registrar
- Shareholders (individual or corporate)
- Directors (can usually be the same as shareholders)
- The registered agent in the jurisdiction of registration
- Registered address in the jurisdiction of registration
- Share capital per local requirements
- Maintenance of company records in a specified location
- Payment of initial registration costs
- Payment of ongoing annual costs
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Purpose of a Holding Company?
The purpose of a holding company is to hold assets on behalf of an ultimate beneficial owner. In most cases, these assets include shares in other (subsidiary) companies. The reason for using a Holdco will vary depending on the individual setting up the structure, but it can offer benefits in terms of taxation, privacy, asset protection, and more.
How Do You Create a Holding Company?
To create a holding company, you first need to choose a jurisdiction for registration. Then, you can proceed with the registration process by engaging a local registered agent, paying the required fees, submitting the necessary compliance documents, and completing the registration process. That said, in order for a Holdco to be used long-term, annual fees, filings, and records need to be maintained.
When Should You Start a Holding Company?
The decision to start a holding company will be different in each scenario. For example, a Holdco that is being structured for asset protection purposes will have a different timeline than a Holdco that is being structured for operating purposes. With this in mind, there is no set rule for when you should start a Holdco, and the decision should be based on your specific requirements and goals.
How Does a Holding Company Make Money?
A holding company typically makes money through the dividends that it receives from a subsidiary. That said, it is also possible for a Holdco to make money from management fees, interest payments, royalties and licensing, and other investment income related to the assets held.
What Is the Benefit of a Holding Company?
There are a wide range of benefits of a holding company. In short, they include greater asset protection, greater privacy, tax advantages, and better investment attractiveness. Additionally, if subsidiary companies are registered in high-risk or blacklisted jurisdictions, registering a Holdco in a more stable jurisdiction can help unlock access to more stable banking options around the world.
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