Investors will often notice equity holding groups listed among the major shareholders of various publicly traded companies. It's not uncommon for a single equity holding group to hold stock in several different public enterprises. It is also possible, and sometimes advantageous, for an individual investor to buy into an equity holding group. Understanding what these entities are and how they operate is an important part of researching these kinds of investment opportunities.
An equity holding group is an organization of investors to pool equity and purchase stock in several different businesses. They're called an equity holding company because they literally hold equity in the enterprises they own. The companies an equity holding group are often controlled by the group, even if they have other investors. In this way, equity holding groups are generally different than investment companies, as they exist mainly to hold and manage shares of these subsidiary companies, rather than actively trade them.
The purpose of an equity holding group can vary somewhat, but most of these organizations are designed as a means to diversify investments and arrange for the acquisition of business interests. In some cases, they are formed out of the consolidation of two businesses that were previously competitors. In either situation, the holding group is designed at least exercise legal control, if not management, of their various subsidiaries. In some countries, holding groups offer the potential of tax benefits.
Bank Holding Companies
Some equity holding groups are regulated and treated differently under the law depending on the industry their holdings are in. Equity holding groups that invest primarily or exclusively in banking companies are considered bank holding companies, which are regulated and supervised by the Federal Reserve and Federal Deposit Insurance Corporation. Bank holding companies make up a large part of the United States banking industry, as 84 percent of banks in the country are either organized as a bank holding company or are owned by one, according to the Federal Reserve.
Personal Holding Companies
The government sometimes classifies normal corporations as equity holding groups as a part of a legal provision that is designed to prevent tax evasion. In these cases, the equity holding group is called a personal holding company, as the Internal Revenue Service considers the holding group as organized merely for the purpose of holding assets an individual person could have owned outright. Personal holding companies face a higher tax rate than corporations or individuals -- usually 15 percent more on their income. This distinction often arises in the case of companies that sell a substantial portion of their assets for cash, as in the case of a company buyout by a larger corporation.
- Company Law and Secretarial Practice; Ashok Sharma
- Private Equity Funds: Business Structure and Operations; James Schell
- The Globe and Mail: Holding Companies Have Their Benefits
- Organization for Economic Cooperation and Development: Glossary of Statistical Terms -- Holding Company
- Business Record: If Your Corporation Has Sold Out, the IRS May Be After Your "Incorporated Pocketbook"
- WRAL TechWire: The Personal Holding Company Tax: A Potential Trap for Early Stage High Tech Companies
- Partnership for Progress: Bank Holding Companies
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