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Business owners are always looking for ways to protect their business’ assets. And over the years a number of strategies have been developed to help them do so. One of the most effective is dividing the business into several business entities all owned and controlled by a single holding company.
A holding company is a business entity—usually a corporation or limited liability company (LLC). Typically, a holding company doesn’t manufacture anything, sell any products or services, or conduct any other business operations. Rather, holding companies hold the controlling stock in other companies.
Although a holding company owns the assets of other companies, it often maintains only oversight capacities. So, while it may oversee the company’s management decisions, it does not actively participate in running a business’s day-to-day operations of these subsidiaries.
A holding company is also sometimes called an “umbrella” or parent company.
The holding company can own 100% of the subsidiary, or it can own just enough stock or membership interests to control the subsidiary. Having control means it has enough stock or membership interests to ensure that a vote of owners will go its way. This can be 51%, or where there are many owners, it can be a much lower percentage.
Each subsidiary has its own management who run the day-to-day business. The holding company’s management is responsible for overseeing how the subsidiaries are run. They can elect and remove corporate directors or LLC managers, and can make major policy decisions like deciding to merge or dissolve. The people running the holding company do not participate in the operating companies’ day-to-day decision making.
A holding company typically exists for the sole purpose of controlling other companies. Holding companies may also own property, such as real estate, patents, trademarks, stocks, and other assets.
This structure serves to limit the financial and legal liability exposure of the holding company (and of its various subsidiaries). It may also depress a corporation’s overall tax liability by strategically basing certain parts of its business in jurisdictions that have lower tax rates.
Businesses that are completely owned by a holding company are referred to as “wholly-owned subsidiaries.” Although a holding company can hire and fire managers of the companies it owns, those managers are ultimately responsible for their own operations.
How is a holding company financed?
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The holding company’s management is also responsible for deciding where to invest its money. The holding company can obtain the funds to make its investments by selling equity interests in itself or its subsidiaries or by borrowing. It can also earn revenue from payments it receives from its subsidiaries in the form of dividends, distributions, interest payments, rents, and payments for back-office functions it may provide.
Types of Holding Companies
Holding companies fall into different categories, depending on their business operations. Some only exist to hold a single subsidiary, while others may be engaged in other business operations. The different types of holding companies are explained below:
• Pure Holding Companies: A pure holding company is one that only exists as a vehicle for ownership of other firms. These companies do not participate in any other type of business.
• Mixed Holding Company: A mixed holding company is one that has its own business operations, in addition to managing its subsidiaries. Another word for this is a holding-operating company.
• Immediate: An immediate holding company is a company that owns other companies, but is itself owned by another entity. In short, these are holding companies that are owned by another holding company.
• Intermediate: Similar to an immediate holding company, these are holding companies that are also subsidiaries of a larger corporation.
Ayaran Holding gathered this.
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At its most basic, a joint venture is when two or more businesses agree to work together.
It’s effectively a commercial agreement between two or more participants, usually entered into in order to achieve specific business goals such as launching a new type of business or selling products into a new market.
Each company maintains its separate business structure and legal status opens in a new window, with joint ventures creating a new, jointly-owned child entity that is effectively at arms reach from the parent companies.
Joint ventures aren’t restricted to limited companies open in a new window, either.
Any number of companies or individuals may collaborate on a joint venture, and these agreements can involve all types of business structures including sole traders opening in a new window and self-employed individuals open in new window, limited companies, and limited partnerships.
Joint ventures don’t need to be equally split between partners, either, with different partners able to hold differing stakes.
Joint ventures usually have a defined timeframe or outcome, such as a one-off project – although they can also encompass long-term partnerships.
They should ideally benefit all parties, growing businesses or providing additional revenue streams that would be impossible without partnering with another business.
TYPES OF JOINT VENTURES
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There are two major types of joint venture that two or more companies might participate. These joint ventures might affect one particular product or an entire product or service line.
1. PERSONNEL-BASED JOINT VENTURE
This type of partnership covers both the people themselves and the expertise they bring to the table. Several staff members from Companies A and B are placed on a project. Think of multiple programmers to design or upgrade an app, or several architects to refurbish an out-of-date building.
2. EQUIPMENT-BASED JOINT VENTURE
This type of venture involves technology or machinery. For example, Company A lacks the manufacturing technology to produce its new furniture line. It partners with Company B, which has the necessary equipment but lacks designers. The advantages of a joint venture agreement in this example are clear: the collaboration allows Company A to create its desired innovation without an outlay of capital, while Company B gains a percentage of profits without incurring development costs.
JOINT VENTURE EXAMPLES
These joint venture examples involve some of the world’s most famous businesses.
• CARADIGM (MICROSOFT CORPORATION + GENERAL ELECTRIC)
• BARNES & NOBLE + STARBUCKS
• FIAT CHRYSLER + GOOGLE
• SAMSUNG + SPOTIFY
• FORD + TOYOTA
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