Advantages of the Holding Company Structure in Setting Up Companies in the US
A holding company is a great way to diversify business holdings.This is true for both domestic(US) and international companies.
To be a holding company,the following conditions must be met,based on the IRS criteria:
Personal Holding Company Income Test -at leas 60% of the AGI must comprise of dividends,rents,royalties and interest
Stock Ownership Requirement-five or less individuals,directly/indirectly must own more than 50% of the outstanding stock of the company during 6 months of the tax year.
Tax-free dividend paid by the subsidiaries to the holding company( as long as the holding company owns 80% or more of the subsidiary)
Diversification of income-money paid to the holding company can be used to reinvest into other businesses
Holding company can loan money to the subsidiary with the collateral being within the subsidiary itself
Note of Caution-
There must be a separation of operations and books between the holding company and the sister companies in the holdng company structure otherwise the benefit is lost.A company lost a tax case because all the operations were centralized even though there was a holding company and various subsidiaries.
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