What is a Holding Company and How to Start One?

Owner's Profile

Shabil Shukur K K

Published on November 9, 2023, 10:34:33


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A holding company is like a parent company that owns and controls other companies. It’s a way for businesses to manage and oversee multiple subsidiaries or investments under one umbrella. Holding companies often provide strategic guidance and support to their subsidiaries while allowing each company to operate independently.

It specializes in managing its subsidiary companies. Typically, it won't offer goods or services as a typical company would. Its sole purpose is to manage other companies in which it holds a majority stake, providing a structure for a corporate group.

Holding companies will own the majority of shares in a subsidiary or, in some circumstances, completely own all shares. They will have control over a subsidiary, allowing them to influence strategic decisions, policies, and governance.

Holding companies and subsidiaries are considered separate businesses. This restricts the shared liability. As a result, they can be safeguarded from any monetary or legal problems the subsidiary may encounter. This is why corporate groups use holding companies, which protect assets if subsidiaries go bankrupt.

Advantages of a Holding Company

• A holding company offers a range of benefits to a corporate group.

• It helps limit shared liabilities and minimizes risks to the group as a whole.

• Individuals can protect personal assets if the holding company owns them.

• Costs and equipment can be shared, improving efficiency.

• Administration and human resource services can be centralized within the holding company.

• Assets like property or equipment can be leased to subsidiaries, while tax rates can be favourable.

• The movement of dividends between subsidiaries and the holding company is tax-free, safeguarding capital in case of financial struggles.

Onshore Holding Company

Your first option is to establish an onshore or mainland holding company. According to UAE regulations, any holding company must be registered as a commercial business or activity. These companies should comply with the UAE Company Law.

Without participating in direct trade or commercial activity, the law permits your mainland holding company to carry out administrative and commercial operations through its subsidiary firms in the UAE and overseas.

Free Zone Holding Company

Establishing a free zone holding company is the alternative. To encourage international investment and trade, the UAE government established more than 60 economic free zones in the country.

A free zone allows you to operate with greater flexibility and offers several incentives, such as generous tax exemptions, no currency restrictions, and the ability to repatriate 100% of your profits and principal investment.

How to Start a Holding Company?

Holding companies in Dubai must comply with all company law regulations. They must appoint a management board to oversee subsidiaries and appoint directors for each subsidiary company. Non-compliance can lead to legal and financial consequences. Compliance builds trust with stakeholders and enhances reputation. It is essential to consult the best business consultant in Dubai to reduce the risks and eae the proess. It is also crucial for the holding company to ensure that the subsidiary businesses have access to the necessary capital to stay financially stable and to minimize the risks that the subsidiaries may take on. 

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