Holding Companies in Australia6 March 2022 in Business Law
There are a plethora of ways to structure a business in Australia including companies, sole proprietors, partnerships and trusts. However, it may be be advantageous to consider choosing a holding company as a structure for your business.
Holding companies are companies which both own and control other companies. The companies which a holding company controls are classified as subsidiaries. The advantages and disadvantages of holding companies are discussed below
Advantages of a Holding Company
There are several potential business advantages:
- Facilitation of Growth. Holding companies increase the potential for business growth, for example a holding company can increase the number of subsidiary companies it owns.
- Minimisation of Tax. Establishing a holding company can be an effective way to minimise tax obligations of a business. Tax benefits may also extend to the company’s subsidiaries.
- Business Management. The degree of focused control offered by holding companies can be attractive. The directors can effectively manage and control multiple subsidiary companies in a coherent manner.
- Stability. The structure of holding companies can deliver benefits to the stability of both a company’s financial position and it’s internal organisation.
- Minimisation of Risk. A key advantage of holding companies is their potential to minimise business risks. This is because holding companies are not generally legally responsible for the failings of subsidiaries. However, it must be noted that in some situations a holding company will be responsible for subsidiaries.
- Protecting Assets. The assets of subsidiaries can be held by holding companies. Such assets may include property, intellectual property, plant and equipment. Accordingly, having subsidiary assets held by a holding company allows these assets to be protected from some of the risks subsidiaries are exposed to.
Holding companies are not always an appropriate business structure. The risk minimisation benefits offered by the business are not important. As such, it must be understood that holding companies can still be found liable for actions of subsidiaries. Avoiding liability for the conduct of subsidiaries requires that the directors of a holding company are acutely aware of limits of their direct involvement with subsidiaries. The scale of establishing a holding company may not be as beneficial where circumstantial factors increase the risk of setting up a holding company. Accordingly, it is crucial that people seek professional financial and legal advice in order to have a comprehensive understanding of the implications of establishing a holding company.
How can BSM Lawyers help me?
We have a highly experienced team of Business lawyers who are able to advise you on the advantages and disadvantages of holding companies tailored to your unique commercial situation.
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