What is a holding company? Should you set up an investment holding company even if you do not have a business on hand?
A holding company does not produce anything for trade.
It is just an empty shell that hold the controlling power of other companies.
For example, instead of buying a house for rental under your name. You can set up two companies to manage the property.
One is a limited liability company to hold the title of the rental house directly. That means when you default on the payment, the bank can seize the house, but cannot force you, as an individualto pay for the difference.
The bank can also sue the limited liability company.
When you have two rental properties, you should have two limited liabilities companies. This is to prevent the bank from foreclosing both properties when you default on the payment of one property.
To make things easier to control, you can set up a holding company to link up the two limited liabilities companies.
You can keep the profits in the holding company , and use it to buy the third rental property under a third limited liability company.
You can also use the profits to buy shares.
That means you are treating the holding company as your
Investment loss will not affect your personal credit score.
That is why you do not see the rich talking about credit score. The rich do not want to have anything under their names, especially those that come with a mortgage.
They prefer to park all assets under their companies.
A holding company is an administrative vehicle. When you hire someone to do the accounting for your assets, you charge it as an expense under the holding company.
Even though it does not produce anything for sales, it does serve as a tax vehicle.
Some countries have corporate tax exemption for capital gains, provided the holding company satisfies certain criteria. This is to prevent the holding company from flirting businesses.
It is easy to set up a business entity in many countries. You can even set up an offshore business entity as a holding company if you want to keep your identity anonymous.