What Is the Purpose of a Holding Company and What Are the Risks Involved?

You'll need 2 to three companies to take advantage of the best tax rate. And eventually you'll need a company for estate planing to transfer your assets to your children.

For example, passive income (rental income, interest, etc) is taxed at 48%. Active income (small business) is 15%. But, just has a suggestions, " what if your Small Business Inc. charged a management fee to your rental income company...." that means you move that income from a 48% rate to a 15% rate.

Having different companies allows you to do a lot of different things.... especially tax planning.

Liability purposes usually. Some use holding companies as a way for companies under it to benefit from the holding company while the holding company assumes the risk. Deciding to have one is more about the liabilities you have, and/or streamlining your books. You definitely need to talk with an attorney or tax professional (CPA) for advice.

A holding company is a company that does not produce goods or services itself, rather it exists to own shares of other companies. Holding companies can the reduce risk for their owners by inserting another corporate layer in between them and the operating companies and can allow the ownership and control of a number of different companies. A holding company does not really increase risk, but implementing one will increase the level of overall administration and reporting complexity. In certain situations, if enough ownership of the subsidiary is held by the parent company, it may be possible to have certain tax advantages in the movement of funds via inter-corporate dividends and other means.

In order to obtain a detailed understanding of the pros and cons of implementing a holding company structure, you may wish to consult a CPA.

I advise you to sit down with a business lawyer and discuss your various companies as well as future plans for each entity. Together you can decide whether a holding company with subsidiaries is the most effective way for you to operate.

Talk to your accouter, and he will give you the best advise.

Omnicon. Enron.

Holding company vehicles and corporate organizational structures serve a number of purposes beyond tax efficiency. Each business entity will have its own needs for accounting credits, reinvestment decisions and international currency timing issues. Taxation is important but so is flexibility and preparedness for international business activity. There is no one structure or jurisdiction that is correct in every case.