Fast Facts on Holding Companies: Part 1

If you’ve been wondering about whether a holding company could benefit you, read on through this first part of a two-part post. A holding company is a special entity equipped to hold investments, serving as a conduit through which the company controls and enables the underlying businesses. 

It can be used for both individuals and corporations. From the individual perspective, it can be used as an investment vehicle. For corporations, a holding company can benefit a risk-management strategy. The key benefit of this structure is that it leverages money and has the ability to make a small investment hold control over a much bigger portfolio.

As an example, a holding company might be used to invest $1 million as 33% holding share in order to finance a $6 million apartment building. Outside investors would contribute $2 million and the other $3 million is financed through a bank. This means that a $6 million asset has been created from a $1 million investment, offering tremendous leverage. Creating a series of distinct subsidiaries (known as silos), allows for others to remain intact even if one fails. Contact us today to learn more about holding companies- we’re here to help you determine if this is a great opportunity for your business or individual needs. Reach out to info@lawesq.net.