Investment Holding Company

Investment Holding Company

An investment holding company, as the term indicates, is constituted exclusively for holding investments. Unlike most other forms of companies or businesses, a holding company does not offer services or products to people. An investment holding company exists solely for acting as a front for investing partners or individuals, under the guise of a lawful entity.

Such a company acts as a shield, protecting the business partners from the liabilities of investments that are regarded as speculative. On the other hand, the formation of an investment holding company facilitates the transfer of multiple assets concerning real estate management.

What investments can be held by a holding company?

You’d seriously consider starting an investment holding company when you want to put your idle funds or assets to work for you. Wealthy individuals and families, by and large, set up holding companies for reducing their tax burden, minimizing liabilities, and smoothly transfer assets to their next of kin. Numerous well-known corporations, partnership, and sole proprietor businesses operate as investment holding companies.

These companies essentially function as limited partnership firms or LLC (limited liability Company) that is usually termed as a parent holding or company. A typical holding company owns adequate voting stock in a subsidiary company, thereby giving its discretionary powers to monitor the day-to-day activities of the latter. Apart from owing the holding company, the partners or individuals might also hold other kinds of assets listed below:

  • Copyrights
  • Trademarks
  • Real estate
  • Private equity funds
  • Hedge funds
  • Patents
  • Mutual funds
  • Debenture bonds
  • Song rights
  • Copyrights
  • All other types of assets which have transactional value

Benefits & Risks of an Investment Holding Company

1. The biggest benefit of opening and operating an investment holding company is that it insulates itself from losses in the event of the subsidiary firm becoming insolvent. In other words, the net value or worth of the holding company remains intact even if the subsidiary company goes bankrupt. The creditors will not be legally able to pursue the holding company for recovering their funds or attach the corporation’s assets.

2. Owners whose subsidiary ventures are in the red or have become bankrupt can continue to promote their brand or brands. But for doing so, 60% of their AGI (adjusted growth income) must come from their holding company investments.


  1. The most conspicuous downside of establishing an investment holding company is that the vehicle can be misused for exploiting subsidiary firms. For instance, a subsidiary company could be coerced to appoint a director recommended by the holding company.
  2. Proprietors of the holding company could use the establishment for money laundering, i.e., concealing sources of illicitly obtained money. Illegally obtained funds are usually transferred to legal businesses or accounts in offshore banks.

How to open an investment holding company?


For a start, you first need to thrash out a sound investment strategy in consultation with your portfolio manager.


Once you’ve decided on a robust strategy, you’ll need to complete the mandatory paperwork, including creating reports, and filling up documents. At the outset, you’ll have to work out a prudent investment plan by discussing with your partners or family members.


Establish the various kinds or forms of assets you want to invest in. For a start, you can invest in real estate, stocks, shares, annuities, mutual funds, fixed deposits, patents, and so on. Engage a portfolio manager who’ll help you to develop a practical portfolio where he or she exploits effective hedging techniques to mitigate your exposure to different risks. Whatever decisions you take during this stage will have a decisive bearing in the successive steps.


Choose whether you wish to set up a limited liability company or a family trust holding or a limited partnership. The type of investment holding company you finally decide to institute will invariably depend upon the asset types you opt to retain. For instance, if you to want to hold highly leveraged and speculative investments like foreign exchange and real estate, plan on constituting an S-corporation or an LLC.


Once you’ve made up your mind on the holding company, you wish to create, complete formalities for registering the same. You’d be better off, registering the company in the state you reside. You’ll have to tender the registration documentations about your preferred organization type.

The bureau of the ‘secretary of state’ in your respective state will guide you on the necessary procedures and relevant documents you need to submit. Get in touch with an official representing the secretary of state regarding licensing formalities you need to fulfill for the incorporation of an investment holding company. Alternatively, you can visit the website of ‘Small Business Administration’ and go to their ‘business licenses and permits’ webpage for zeroing in on a ‘state licensing authorities’ listing.


The subsequent step where you’ll have to source funds and finances is extremely crucial. The type of assets you invest in will determine the corpus or the volume of funds you’ll require. If you wish to invest in properties, you’ll have to submit your business proposal to an institutional investor or venture capitalist.

Moreover, you’ll have to pitch effectively for ensuring the sanctioning of multiple hefty mortgages at one go. In case it's about holding equities or stocks, you may have set the ball rolling by applying for a small loan. After that, you can slowly and gradually develop your company by making optimum use of the mortgage.

Key Things to Consider

You could take a premeditated risk by applying for a bigger bankroll to start on a grand scale immediately. Take meticulous care in building your basic portfolio by investing your startup funds in assets outlined in your business plan. Keep a close eye on how your investments are performing. This ensures you make good use of capital gains for acquiring larger holdings.

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