Understand advantages of having Holding/Parent Company abroad

Ø  Asset Protection- One of the most important benefit of creating holding company is to protect your business assets. In today’s world, every business operates in an uncertain environment. There is no surety about the success of business, particularly in start-ups. So, it is beneficial if company create a holding company and carve out assets of the group in such holding company so that in case of bankruptcy like situation, creditors can’t claim on the assets of your holding company. Placing operating companies and the assets they use in separate entities provides a liability shield. The debts of each subsidiary belong to that subsidiary. A creditor of the subsidiary cannot reach the assets of the holding company or another subsidiary.

 

Ø  Low Tax Rate- Creating holding companies in off-shore jurisdiction having low rate of tax than operation company can save your lot of tax money that can be used to expand your business in initial years. For e.g: In Mauritius, Singapore, US corporate tax rates are far lower than in India.

 

Ø  Lower debt financing costs- A holding company that has financial strength can often obtain loans for a lower interest rate than its operating companies could themselves, particularly where the business in need of capital or business is a start-up or having more credit risk. The holding company can obtain the loan and distribute the funds to the subsidiary.

 

Ø  Flexibility in Management- A holding company can own businesses in a variety of unrelated industries. It doesn’t matter if the owners and managers of the holding company don’t know about those businesses because each subsidiary has its own management to run the day-to-day operations.

 

Ø  Investor Funding- If you are having only one operating company for your 2-3 business verticals, it is difficult to get the funding from venture capitalist. Suppose some investors has to invest only in one of the business vertical of your company then at that time it is beneficial if the company has one parent company and 2-3 separate subsidiaries so that each subsidiary attracts investors. That is the reason why Google has formed Alphabet Inc., as its parent company and formed other subsidiaries for other business verticals.