1. Investment Holding Company

Investment Holding Company

Author: Real Estate Holding Company

Published Jul 18th, 2023Updated Feb 14th, 2024
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Investment holding companies do not sell their own products nor services to the public. Instead, an investment holding company operates in order to hold or own investments. Used primarily as a vehicle for individuals or partners to make personal investments, investment holding companies offer a layer of liability protection. Especially when it comes to risky investments or making transfers of multiple financial assets. Investment holding companies are also able to facilitate easier estate planning.

What is the Purpose of an Investment Holding Company?

Holding companies may specialize in one industry, but they can also serve as a parent company to many different industries. When it comes to an investment holding company, it will typically specialize in the area of investments. Someone might start an investment holding company because it allows them to purchase the majority interest in another business, and then own or control a company with less equity. This makes it cheaper than a merger. There are also various tax benefits when it comes to investment holding companies.

What Can Investment Holding Companies Invest In?

  • Stocks
  • Bonds
  • Loans
  • Real Estate

Advantages & Disadvantages of Investment Holding Companies


When you hold valuable assets in a holding company, it provides varying degrees of flexibility. Some of these benefits include:

  • Ability to diversify more efficiently
  • Invest in new ventures
  • Exit ventures whenever needed

Operating companies are able to do these operations without risk to the group’s assets. It also gives breather power to the group overall, and to the subsidiaries to invest in larger projects.

Single Control

Usually, the management of the holding company and the subsidiary companies are controlled by the directors of the holding company. Having one point of centralized management can facilitate performance and growth. This can also provide the opportunity for the subsidiary to obtain more favorable financing terms than if the subsidiary was operating on its own.

Reduce Risk

Because holding companies typically hold valuable assets, it allows you to keep your assets separately in an entirely separate entity. This minimizes the risk of losing these assets should the other companies perform badly, inquire debts, or become insolvent.

Tax Benefits

Holding companies can also be set up to reduce the amount of tax that the entire group is required to pay. Whether it is set up to receive lower tax rates or the holding company is set up in another country that has lower corporate tax rates. Despite this, certain laws introduced in 2016 do now regulate tax or profit shifting to international jurisdictions and limited the tax benefits that may result from this.

Protect Assets

Essentially a holding company is set up to hold the valuable assets of a business. These assets may include property, intellectual property, investments, or equipment. Although the subsidiaries take on the daily operations of the business, the valuable assets are protected from creditors and other liabilities that the operating companies may incur.

Starting an Investment Holding Company

Form an investment strategy

The value of a holding company lies in protecting assets. This means that when first starting your investment holding company, you need to ensure that you form a reliable investment strategy. This begins with evaluating your current business needs. If you are serious about asset protection and potential tax benefits, then you are making the right choice. Holding companies allow you to create separate legal entities, and shield the holding company from the debt of the operating company.

Select a form of business organization

There are several forms of legal entities in the United States. When forming an investment holding company, you will either form an LLC, or a corporation. There are also different entity variations of a corporation, being either a standard C-corp or S-corp which affords more flexibility to operations.

Register your business

To create your holding company, you must register it in your state and provide a few pieces of information including:

  • Your business name: Must be unique in your state.
  • Articles of incorporation: Outline the purpose of your company, list members, and specify the purpose of business.
  • Name of your registered agent: Must have a physical address in the state of formation, in order to receive legal documents on behalf of the business.

Raise Start-Up Financing

Whether you already have assets to deposit, or need to obtain financing, this is the time. The wealth that your company generates is deposited with the holding company instead of the operating company. If you already have an operating company in existence, then you may want to sell the assets of the operating company to the holding company to protect them.

Build Your Portfolio

Finally, you can begin building your portfolio. Whether that is investments in stocks and bonds, or real estate, typically investment holding companies participate in different avenues of value.

Costs Associated with Starting an Investment Holding Company

The costs to start a holding company lie in the investments you put into the company. Start-up costs and annual fees are also costs associated with starting and maintaining an investment holding company. Start-up costs will vary based on the state you form in, and whether or not you choose to hire a lawyer.

Who Investment Holding Companies are Best For

Large companies looking to mitigate risk and lower tax commitment get the most value from starting an investment holding company. For smaller companies who do not wish to hold other businesses, forming an LLC or corporation can provide enough liability protection on its own.

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