What is a Holding Company?
A holding company is one that owns at least 50% of the companies companies’ stock. It is a company that doesn’t trade but only has one purpose which is to own shares in other companies.
Under what circumstances would one need to register a Holding Company?
A holding company is a firm that owns other companies’ outstanding stock. It usually refers to a company which does not produce goods or services itself.
Its only purpose is owning shares of other companies.
From a financial point of view, it is usually possible to obtain control of another company with less investment than would be required in a merger or consolidation.
However, the decision on how to split companies depends on the industries in which you operate the shareholding structures, risk profiles and many other issues that will be specific to your situation. This is why professional help is highly recommended.
What are the Pros and Cons of a Holding Company?
- The shares of stock in the subsidiary company are held as assets on the books of the parent company and can be used as collateral for additional debt financing.
- Holding companies and their subsidiaries are considered separate legal entities, so that the assets of the parent company and the individual subsidiaries are protected against creditors’ claims against one of the subsidiaries.
- Each subsidiary retains its own management team, and the subsidiaries become responsible to the parent company on a profit and loss basis.
- The law sees a company as separate from its shareholders and directors. This means that in a CC, the assets and debts of the business belong to the company and the assets and debts of the shareholders and directors have nothing to do with the Company.
- Companies have to obey all the rules of the Companies Act, which is a long and complicated law.
- A company has to keep detailed records. A professional organisation is needed to help explain which records must be kept.
- It is difficult to terminate a company. A lawyer’s help is needed.
What legal entity must one register for a Holding Company?
The best route is to register as a (Pty) Ltd. This is a limited liability entity and the registration process of a (Pty) Ltd is very cumbersome and professional help is almost always sought.
A Close Corporation can also hold shares in a company and can become the holding corporation in a group of companies.
How do you go about registering a Holding Company?
To register a holding company you need to consult an attorney in order to lodge proper compiled documentation at CIPRO in Pretoria. The Shelf Co Warehouse registers most Companies and Close Corporations in South Africa.