| Holding Companies Holding companies on the other hand, are registered as companies, under the company's act or securities and exchange commission. It is perpetual in nature and is considered as an entity in it's own right; it is in a way similar to a person, it can sue or be sued in it's own name. The rules that governs the relationship between different shareholders and the company is specified by the memorandum and articles of association (M&A). They can be private in nature, i.e. they are not listed in the stock exchange or public, such as those listed in the stock exchange. The latter is subject to numerous listing and reporting requirements and is subject to public scrutiny. We will only concentrate on private companies as this is the investment vehicle the investor will be using. A board of directors and executive officers are appointed to handle the day to day operations of the entity. They are agents of the company and are given the authority to transact on behalf of the shareholders. The company are bound by the actions of the board and executive officers; carried out within their areas of responsibility. Directors and the executives are to ensure that the company is run in accordance to good corporate governance and are to appoint auditors to report on the true and fair financial state of affairs of the company. An annual general meetings is conducted yearly where shareholders can query the directors and approve the accounts. Extra ordinary general meetings (EGM) are called when the company has to make major decision specified within the M&A or outside it's scope of responsibility. In the case of a private company, change of individual ownership is effected through transfer by means of the owners selling their shares to others within the company (right of preemption) or to outside parties if the offer is not taken up. Properties need not be sold off to effect transfer or divestment and lower transaction cost is involved. Other than administrative fees (stamp duties in certain countries) for the transfer of shares in the company the transaction is straight forward. Partial disposal of holding in shares is possible if cash needs to be raised. There are both tax advantages and disadvantages for the holding company, it varies between countries and the situation of the investor. Many factors has to be taken into consideration, tax threshold of the individuals involved, purpose and strategy adopted by the company, etc. |
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