If you follow the stock market or even company news, you must have heard the word “holding”.
The term “holding” means “to control” or “hold” and is used to refer to companies that operate precisely under the control of other companies. At first, this may seem strange, because for what purpose does one company influence another?
Well, know that holding companies play an important role in the management of various businesses, as we will see below.
What is a holding?
A holding company is a company formed for the specific purpose of controlling certain agents. It is not a corporate type (such as Sociedade Limitada or S/A), but a company formed in accordance with the activities set out in its articles of association.
In other words, there is no such thing as a holding company. What will characterize these companies is their sector of activity, not the distribution of shares or responsibilities of partners.
In most cases where a business group has a holding company, it is the holding company that owns the controlling interest in one or more companies in the group. This happens for several reasons, which we will see below.
Types of holding
In this content, we will focus on business holding. However, it is important that you know the main types of holdings. Follow up!
This type of holding company has the sole purpose of participating in the capital of other companies. That is, it does not carry out any type of economic activity.
A mixed holding company is created for the purpose of participating in the capital of other companies, as well as carrying out any economic activity.
The administrative holding was created to facilitate and optimize the management of the company. Its aim is to provide professional management as all business decisions are made by it.
These holding companies are specifically set up for corporate control over one or more companies in the same group.
Unlike the previous model, the holding company seeks to own minority shares in other companies.
This type of holding company is not aimed at the business but at the generic assets in case of inheritance. To facilitate the process of family succession, the owner of the assets transfers his assets to this holding company. It is an effective form of estate planning.
Basically, this holding controls the assets of people from the same family.
Example of a business holding
Take as an example a holding company well known to equity investors: Itaúsa. This holding company was created shortly after the merger of Itaú and Unibanco and, in addition to the bank, controls all other group companies such as Alpargatas, Dexco, Duratex, Copagaz and others.
Itaúsa is a pure holding company, meaning it only manages the companies in the conglomerate, without any operating activities. This is a company that invests in several market segments, including operations in other countries.
Another classic example is Berkshire Hathaway, the holding company of mega-investor Warren Buffett. Berkshire owns stakes in more than 50 companies, including Coca-Cola, Apple and American Express.
See also: Berkshire Hathaway: everything about this company
What are the benefits of creating equity participation?
Setting up a holding company has a number of advantages. Below we list some of the main ones:
Facilitates company management
The companies controlled by the holding are subsidiaries. In this model, the manager of each subsidiary company has the right to independently manage routine activities. That is, the parent company does not directly need the current activities of subsidiaries, but can only control them. Thus, you are free to express your business strategies.
Helps reduce costs
Because the holding company represents all of its subsidiaries, it can operate on a large scale. This means that in commercial negotiations, he can receive discounts and differentiated conditions for large volumes of purchases.
Reduces control conflicts
Many family business groups experience managerial conflicts. With a business holding, these differences can be mitigated as business management becomes more professional and less personal. This contributes to the health of companies and investor confidence in general.
Strengthening the business group
Ultimately, all of the above benefits strengthen the business group. With a holding company, it is easier to demonstrate to the market the performance of each of the companies in the group, and this is important for shareholders and potential investors.
Promotes new group investment
Let’s take the examples of Itaúsa and Berkshire Hathaway again. When a business group decides to invest in different segments, the best way to do this is through a holding company.
As we have seen, this holding company may control companies or simply own minority interests in various enterprises. Everything is a waypromotes portfolio diversification and opens up new opportunities for the profitability of the business group.
When the companies in the group operate in different sectors and operate on a large scale, business holding makes these operations much easier. However, there are several legal aspects that must be observed when setting up holding companies.
Since these companies provide significant tax savings and operate in different segments, they are usually subject to tight regulatory scrutiny. Therefore, to assess the feasibility, it is necessary to conduct an in-depth legal, accounting and tax research.