Family Holding Company (Family HoldCo)

A holding company is typically not an operating company. It may hold operating businesses, but the holding company itself has a primary function of centralising and aggregating other business and investment interests.

A family holding company is simply a holding company that is owned, and often managed by a single family.

A family holding company can provide tremendous benefits to families with an operating business and a substantial investment portfolio.

• Consolidates and centralises things for ease of management. Having different businesses operating under the same umbrella means that instead of having to consider accounting, tax, legal, HR, compliance and operations X times, you only have to go over it once. Admittedly there will be some silos inside the bigger ‘box’, but universally its easier to keep track of things that are all in the same place.
• Reduces cost. In continuation from the above, consolidating your business and investment interests under one umbrella reduces the number of services required (while increasing the scope). This can sometimes mean less service providers, but will invariably mean more pricing and negotiation power due to economies of scale.
• Reduces liability. Many people have various assets and enterprises titled under their own names which presents the constant legal risk posed by liability and litigation. Corporations provide a more robust ownership solution for valuable things (and large targets).
• Makes Succession easier. Holding company structures lend themselves to easy continuity and succession planning. Inheritance and wealth transfer can be nothing short of a nightmare when the decedent dies with business interests and assets scattered across the country, if not the world.
• Reduces Tax. There is far greater scope for corporate tax planning than individual tax planning. This can be further enhanced when planning internationally, taking advantage of low and neutral tax jurisdictions for your entities.

Mr. Client owns 3 successful businesses and has a significant real estate, and securities portfolio. Administration of his affairs has become burdensome and he finds it difficult to dedicate the time required to keep up with the different management teams, service providers and advisers. He is also concerned that should something happen to him there will be significant down-time across the family businesses and potentially large estate tax liabilities for his wife and two sons.

With the help of his wealth manager, accountant and lawyer they structure x4 companies and re-structure Mr. Clients affairs:

Company 1: holds family securities investments
Company 2: holds family real estate investments
Company 3: holds operating businesses
Company 4: holds companies 1, 2 and 3

The result is:
– increased ease of management and administration of Mr. Clients affairs
– reduced legal liability for Mr. Client
– reduced tax liability for Mr. Client’s investments
– reduced inheritance taxes payable by his estate in the future
– reduced down-time for the family businesses in the event of Mr. Client’s passing

Note: in practice entity structuring is highly complex and many variables need to be taken into consideration to avoid conducting planning which creates more cost and liability than it reduces.