Earlier this week Google announced that they are re-organising their business by forming a holding company called Alphabet. Holding companies are a pretty common way to organise large businesses but can also be useful for smaller organisations.
Google’s main motivation for forming a holding company was to give it’s investors a better idea of what is going on with different parts of their operation. Their holding company, Alphabet, will own a lot of smaller companies which each control different areas of the Google business. So, instead of their search engine business, driverless cars, investments and phone businesses all being lumped together in one set of financial results investors will be able to see the results for the search engine company, the driverless car company and so on separately. This also has the advantage that if any of the companies run into major issues (say the driverless cars start running amok) then Google can close down that company and tie off any financial losses without much impact on the wider group.
Holding companies for asset protection
As with the Google example above one benefit of separating out parts of your business into different companies is that if one of them goes bad it is isolated from the rest of your operation. A more common use would be a chain of shops where each shop is a standalone company which is owned by the holding company. If a particular shop starts losing a lot of money it can be closed down easily and it’s debts isolated from the shops which are performing well.
Another common use of holding companies is to protect assets. So, again using the example of a chain of shops, each shop building could be owned by a separate company and these companies in turn could be owned by the holding company. If the business then wants to sell a shop building, or borrow money against it, they can do so without any impact on the wider business.
It is also common practice for landlords to set up companies for houses and flats, some people also use holding companies to ‘own’ more intangible assets such as trademarks and patents.
How to form a holding company
In the UK we often refer to groups of companies. Until January 2015 ‘group’ was classed as a sensitive word and could only be used if multiple companies were involved. These rules have now been relaxed and forming a holding company is much simpler. Although there are lots of variations the most common way to do things it to form a series of private companies limited by shares (the standard UK limited company). You then make your main ‘holding’ company the majority shareholder of each of the other limited companies so that it owns them and that’s pretty much it. You have a holding company and a number of wholly owned subsidiaries. You can get a lot more complicated than that obviously but the basic process of forming holding companies isn’t much different from forming a normal company.
If you are thinking of forming a holding company in the UK give us a call on 0800 0828 727 and our business consultants can talk you through the process. Alternatively contact us through our website and we will give you a call back.