Duke Equity Explains: What Is An Asset Holding Entity?

What is An Asset Holding Company? It is a corporate entity set up to hold or control the assets of another company or companies

. By itself, it has no commercial activity and because it conducts no business activity of its own, the risk of liability is reduced considerably and therefore the assets held are protected from legal action. A company of this sort can control the assets of a locally based small business or be multinational in breadth with assets totaling in the billions.

Before establishing an enterprise like this, it is important to research the laws in the jurisdiction where the company will be situated. Most countries demand that the holding company hold at least 50% of votes on the board of any operational entity. In other countries, the percentage required may be even higher.

For any business activity to take place, the owners will set up a separate operating entity. The original company could now be liable for the activity in the second one but only for the share of its assets in that company. The risk of liability is reduced because legally the company does not own the operating enterprise.

One company can usually control the activities of several operating companies but care should be exercised that all activities are kept separate from each business. There is no legal requirement against the types of operating companies that can be controlled in this manner. A holding company such as Duke Equity has commercial interests in car parts manufacturing, banking services, health care, real estate, transportation just to name a few. It has operations in rapidly developing economies like India, China, the US and Europe; and it has become a dynamic source of strategic development and capital investment.

When an operating enterprise needs financing, it will return to the original founding company to secure funding. Its assets will be placed under a priority lien and is protected because of repayment of the financing.

The most valuable assets of a business should be owned by an asset management company and then leased back to it. Leasing the assets protects them from being seized by potential creditors and also provides a way of protecting vulnerable liquid assets such as cash away from the operating entity.

When properly run, this kind of company is an excellent way of minimizing liability while maximizing wealth. For example, many banks are run by asset management companies. This way, they can offer a multitude of financial services to their customers and not be accused of a conflict of interest by the government since it recognizes the operating entities as being separate from the bank.

by: Robert Witherspoon

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