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Old 07-06-2018, 03:59 PM
 
Location: Ohio
17,986 posts, read 13,233,625 times
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Quote:
Originally Posted by FrankMiller View Post
What distinguishes a holding company is that it holds assets rather than performing business.

That's correct and pretty much it in a nutshell.


A holding company employs no one, manufactures nothing, sells nothing, and provides no services of any kind. It simply holds assets.
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Old 07-06-2018, 04:10 PM
 
Location: Silicon Valley
2,744 posts, read 1,207,954 times
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Quote:
Originally Posted by Mircea View Post
That's correct and pretty much it in a nutshell.


A holding company employs no one, manufactures nothing, sells nothing, and provides no services of any kind. It simply holds assets.
This is correct. There can be many reasons to have a holding company. It could be to allow for diversified risk. If you are making a motion picture, and you have a scene where you're going to blow up a building in real life, you may have the production company outsource the filming of that scene to a shell company (or company with nothing in it at all) which is still controlled by the holding company but has no risk should something go wrong.

A holding company can be used for tax purposes. If you were doing business with Venezuela, which is currently nationalizing anything they can, you would want to carve out the assets of the Venezuela piece careful and put it into a separate entity so that any rules would not allow for risk to your main company.

You may also separate things for simple logistics. If you have a business in Australia, you may want to carve out a separate entity of assets for Australia and sell to that entity, rather than have a mainland entity do it so that you have a clearer record (and hard stop point) for taxes.

You may want to manufacture something in a protected market. A joint venture company may be formed with a local provider in order to facilitate this with ownership in the stake held by the holding company.

You may also have something that needs to be protected. One client I had bought video content and would distribute this in countries such as Mynammar and Nigeria. These countries do not have strong infrastructures in place for protecting content rights so the owners would sell temporary rights only to the holding company in Singapore, where rights are much stronger, and the company could distribute from there.

Basically the holding company is the top of the pyramid that owns all of the other entities (or at least a portion of them) where the other assets are generally kept. They are the vehicle used to consolidate operations of many different entities that it owns.
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Old 07-06-2018, 10:19 PM
 
Location: Paranoid State
12,662 posts, read 9,420,097 times
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Quote:
Originally Posted by Mircea View Post
Nearly all musicians use holding companies, like Big Elk Music.

Or like Big Brother & The Holding Company. 😀
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Old 07-06-2018, 10:20 PM
 
Location: planet earth
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It's just an intermediary company.
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Old 07-07-2018, 09:26 AM
 
Location: Paranoid State
12,662 posts, read 9,420,097 times
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Any large corporation is comprised of many legal entities. It is common for there to be 75 to 200 separate legal entities, each of which is its own corporation. Many are separate sales entities in separate countries. Some are just PO boxes with no employees. Sometimes they are set up for income tax purposes.

A classic example: research going into a new pharmaceutical might be conducted in the USA, and then patent applications are filed in key jurisdictions around the world. Before a patent is issued, its application is not worth that much, because no one knows if the application will be rejected or if it will become an issued patent. Moreover, the drug covered by the patent might or might not be approved by the FDA and might or might not be commercially viable. Because of this, the value of the patent application is small. So, the US entity sells the patent to a separate legal entity in a lower tax jurisdiction such as Ireland. Years later, let's say the drug is approved and is commercially viable. The pharma company manufactures and sells the drug in the USA (and elsewhere), but the US entity pays a very large fee to the Ireland entity for the license to the patent. By doing this, the US legal entity shows higher costs and hence lower profits for income tax purposes, and the Irish legal entity shows high revenue with low costs for income tax purposes. Thus, the entire pharma company's total income tax obligation adding up all of its legal entities is lower.

With the new, lower corporate tax rate, we'll see much more of the total entities profits being recognized in the USA instead of elsewhere, but that's a separate discussion.
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Old 07-07-2018, 11:16 AM
 
3,182 posts, read 2,810,546 times
Reputation: 1855
Quote:
Originally Posted by Mircea View Post
That's correct and pretty much it in a nutshell.


A holding company employs no one, manufactures nothing, sells nothing, and provides no services of any kind. It simply holds assets.
Not necessarily the case. Sufficiently large and complex holding companies can and do employ people, just generally not very many. Lawyers, accountants, and the like to put together the consolidated books and represent the holding entity's legal and business interests (as distinct from those of the subsidiary companies).
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