What is a Holding Company?

The concept of a holding company may be quite complex and people often find themselves asking the question “what is a holding company?” A holding company is a company which owns the majority of the shares in another company or group of companies. They are usually corporations and sometimes are created with the sole aim of taking over other companies. This control comes through owning a percentage of the said company’s stock, in most cases 50 percent or more. On some given instances though, this company may be created to manage more efficiently, the said company’s resources.

A holding company does not necessarily have to have the same name as the company that it is taking over or even produce the same kind of goods. But it operates within legal grounds and whatever it does to take over the said company is legal under law.

How does a company go public?

So how does a company go public exactly? A holding company can go public simply by offering the shares in the public market. Going public means that the company will be able to raise a lot of money in a short period of time. A holding company may be organized to operate for a short period of time, or created as part of a long term idea. They allow stakeholders to acquire significant interest in the company by minimizing debt.

The company attempting the takeover bid normally has a limited amount of time in which it can make its intentions known and acquire the necessary shares required for the takeover, which sometimes can be a messy affair. Governments will not step in into takeover bids when there is a conflict that cannot be resolved between the company in question and the holding company in which case, the government will give the holding company time to make good its bid, or withdraw its bid.

Holding companies can either be personal holding companies or public holding companies; the scenario described above essentially speaks of a public holding company. A personal holding company as defined by section 542 of the internal revenue code will be deemed so if it satisfies two conditions:

  1. At least 60 percent of the company’s adjusted ordinary gross income for a tax year is from dividends, interest and royalties
  2. Anytime during the last half of the tax year, 50 percent or more of the stock is owned by either directly or indirectly, by 5 or fewer individuals.

How to start a public company?

In order for you to start a public company, you need to put all your options in place and have clearly defined goals and the knowledge of what going public essentially means. You will need to know how a company goes public and the processes involved in instituting a public company. But more so, you will have to put in mind the cost of going public because sometimes it might prove to be too expensive. Take some advice and check your options before choosing to make your holding company, a public one.

Learn more about how to start a public company here.

Costs of going public

There are several costs of going public that are associated with taking a company public. Some of the costs include underwriter’s discounts or commission, out of pocket expenses, legal fees and also audit fees.

The best investment advice one can take in constituting a holding company is ultimately to go for big corporations which sometimes have undervalued stock, rather than invest in corporations that do well on the face of it because more often than not, their stock values crash.

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