What is an Investment
Holding Company?

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Investment holding companies, as the name implies, exist solely to hold investments. Investment holding companies do not offer any products or services to the public, including financial planning services. Holding companies are essentially a vehicle for individuals or partners to make personal investments under the umbrella of a legal company, adding a layer of liability protection for highly-speculative investments or making transfer of multiple financial assets easier in estate planning.

Investment holding companies are corporations that exist simply to own investments. Holding companies do not sell anything to the public, nor provide any services. Instead, they are a vehicle for investors to work under the umbrella of a company. This not only provides a layer of protection and limited liability but can give investors the tools to transfer multiple financial assets in one swift movement.

What is the purpose of an investment Holding Company?

You might want to set up a holding company to help structure your business while you grow, or to provide additional capital to newly founded companies. You may want to do this with one or two subsidiaries because this can provide protection against risks. It can also offer the opportunity to streamline operations while supporting business growth. Investment holding companies typically invest in stocks, bonds, loans, or real estate.

What can investment holding companies invest in?

  • Stocks
  • Bonds
  • Loans
  • Real Estate

Advantages & Disadvantages of Investment Holding Companies

There are many advantages and benefits of forming an investment holding company.


When holding assets of value in a holding company, it provides a variety of flexibility. Your company can then decide to diversify more efficiently, invest in newer ventures, and leave ventures that no longer serve the company. These choices are able to be taken without risk to the assets of the holding company, or the holding company itself. It also gives more power to the subsidiaries to invest in large projects with the backing or funding of the holding company.

Tax Benefits

Holding companies may be set up to reduce tax liability for everyone involved. For example, the holding company may simply have a different structure, or established in a country that has lower corporate taxes. These laws regarding international taxation changed in 2016, but may sometimes be applicable.

Single Control

When it comes to the management of a holding company, this usually passes on to the subsidiaries. By having one single point of control, there is a more cohesive management system. Although this may seem like a positive because it can maximize the company’s performance and growth, it can also be seen as a negative in some cases because all the control lies in the board of directors as determined by the holding company.

Reduce Risk

Where a holding company owns valuable assets, it becomes a separate entity from the operating company. This reduces the overall risk and the risk of losing those assets. Even if the operating company performs poorly or becomes insolvent, the risk still decreases.

Liability Protection

Holding companies are able to hold many valuable assets of a business. These might include property, intellectual property, as well as equipment. Then the subsidiaries will be able to take on the daily operations of the business as well as its trading responsibilities. These assets are then shielded from creditors and other liabilities that might be incurred by the operating companies.

Starting an Investment Holding Company

How do you start an investment holding company?

  • Form an investment strategy: This is essential as you begin your journey to starting an investment company. You will need to decide what investments you want your company to hold. You have the choice of stocks, bonds, and other securities, but also real estate, loans, and other investments. Your portfolio should be balanced with higher risk options and lower-risk options.
  • Select a form of business organization: The types of investments that you hold will influence the type of organization you wish to form as. If you want to hold risky investments, such as real estate, or foreign currencies bought on margin, you may want to consider forming an organization that offers liability protection. This might include an LLC or S-corporation.
  • Register your business: You will be required to register your business in your state. Do this by submitting the required registration documents. Then, contact the secretary of state’s office and find out what is required based on your business type.
  • Raise Start-Up Financing: The amount of financing you need depends on what you want to invest. In addition, if you have high growth goals you will need a larger investment. When it comes to real estate, you may need to have the ability to obtain multiple mortgages at once from one lender, whereas with stocks, you might start with one bankroll and slowly grow on that.
  • Build Your Portfolio: After obtaining start-up capital you will be able to move towards purchasing your first assets. This should be done in accordance with the plan you have already developed. You will have begun the process of acting as an investment holding company, but it is important that you continually monitor your investments. Using capital gains you can continue to finance other investments and gain larger holdings in the future.

Finally, starting a holding company is not expensive. All you will need to pay for are business start-up costs. This will either be incorporation or the cost to start an LLC. This varies from state to state.

Who Investment Holding Companies are Best For

Who gets the most value from starting an investment holding company?

  • Who does not benefit from one.

Who Are Investment Holding Companies are Best For

Forming an investment holding company is how an individual or multiple partners can bring their money together to make investments. This is done in order to make investments by a business entity, which provides an easy means for transferring assets, liability protection, and structure.

Anyone who is looking to invest either by themselves or with partners can benefit from creating a holding company. Most people want to enjoy asset protection while investing their money. As long as there is a collective investment objective or strategy, having that protection is essential.

There are a number of ways that you can structure an investment holding company. Whether that is as an S-corporation, C-corporation, or LLC. By contacting a lawyer to help you determine which structure is right for your holding company, you can target your objective and the strategy you plan to use.

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