The purpose of forming a real estate holding company is to protect an investor/investors against anticipated risks and liabilities associated with an investment in property or similar assets. Forming such a company facilitates simplification of taxation and book keeping while isolating income from property or specific properties. It is the reason why most investors are advised to form their own real estate holding company.
Market risks, asset-level risks, idiosyncratic risks, liquidity risks, credit risks, etc. are some of the probable risks a real estate company may face. The investor/investors are safeguarded against these risks, and his/her investments are not at stake. Forming a real estate holding company is quite easy and may be implemented by the investor himself/herself. Alternatively, they can take the help of a lawyer to do the formalities on their behalf. There are several benefits, apart from protecting individual or primary business assets. They include limited liability and tax benefits, facilitates the establishment of strong business credit, and helps a business appear like a professionally managed entity by having LLC at the end of its name.
A family holding company is perfect for wealthy families that are looking to invest in assets as a common pool to maximize ROI. Once a family holding company is formed through an LLC operating contract, the company can easily invest in any asset which may be real estate, shares, stocks, mutual funds, etc. An LLC offers immunity against losses wherein if an entity becomes insolvent, the personal assets of the members will not be used to pay off the liabilities.
The purpose of forming a family holding company is to gain control over different assets, particularly for better real estate planning. Most wealthy families establish a holding company to transfer assets to the next generations without passing on the burden of the estate or gift taxes. An established family holding company not only facilitates easier allocation of assets to children and grandchildren but also reduces the burden of gift and estate taxes.
Formed solely to hold investments, an investment holding company does not offer services or products to customers. It merely exists for acting as a front for investing individuals and partners as a lawful entity. A holding company can invest in a variety of assets, which includes trademarks, copyrights, real estate, hedge funds, private equity funds, etc. The primary benefit of establishing such a company is that it insulates itself against the loses in an event the firm becomes insolvent. Also, if the company makes losses, owners can still promote their brands.
On the flip side, there is a possibility of misusing such a company to exploit subsidiary firms. An owner may also use it for carrying out unlawful activities such as money laundering. Establishing an investment holding company is a simple and a six-step process that requires mandatory documentation. Most rich individuals, as well as families, set-up a holding company to reduce the tax burden, minimize liabilities, and efficiently transfer assets to the next generation.
Commonly referred to as Limited Liability Company or LLC, holding company is a preferred corporate structure across the world. Most multinational organizations operate as holding companies. These corporations presently employ over 30 million people and generate $9 trillion yearly. Risk alleviation is the most important benefit that is offered by such a company. However, apart from insulating individuals against the risk and liabilities of the company, there several benefits that come along.
The holding company also safeguards the assets owned by the parent company. It includes protecting against the impact of estate and gift taxes, bankruptcy, etc. Also, management and administration of daily operations of any subsidiary company and the holding company remain under the centralized control of the directors. This facilitates better management of the group companies and leads to enhanced development and performance. Other benefits include minimization of tax liabilities and offering a flexible growth and development platform.