What are the Different Types of Holding Company Structures?
There are many types of Holding Company structures. The Holding Company itself is usually set up as a Limited Liability Company. In Malaysia, this would be a Private Limited Company (Sdn. Bhd.) or a Public Limited Company (Bhd.).
A Private Limited Company in Malaysia prohibits public subscription to its shares and does not allow any deposits of money for investment. A Sdn. Bhd. Company is also limited to a minimum of 2 to a maximum of 50 members.
A Public Limited Company is permitted to offer shares to the public and permitted to offer other forms of subscriptions for investment. A Bhd. Company has a minimum of 2 members and does not have a maximum number of members.
The following are different types of Holding Company structures:
- A Pure Holding Company is a Holding Company setup for the sole purpose of controlling other companies and does not have their own business operations; that is the company does not produce its own goods and/ or services
- A Mixed Holding Company is a Holding Company that while it also own and control other companies, the Holding Company also has its own day-to-day business operations producing goods and/ or services.
- An Immediate or Intermediate Holding Company is a company that controls another company or companies while it is being controlled by another corporate entity. Basically, this means the Holding Company is a subsidiary of another Holding Company.
The only difference between an Immediate Holding Company and an Intermediate Holding Company is in the form of financial accounting reporting requirements.
Investment Holding Companies in Malaysia
An Investment Holding Company (IHC) in Malaysia is defined as a company whose main activities consist of holding investments and derive no less than 80% of its gross income from these investments. Any of the Holding Companies mentioned in the sections above may be an Investment Holding Company provided the following two rules are maintained:
- Purpose of the Company: The company’s main activity is the holding of investments. The company may offer other services, for example management, security or even selling of retail goods provided it is not listed as its main activity. The company will not be considered an Investment Holding Company if its listed activity is to sell a product even if the company is not able to derive most of their income from sale of said product.
- No Less than 80% of the Gross Income is from Investment: The company must obtain no less than 80% of its gross income for example, from dividends, interest and non-business rents. Business rental is the rental of property inclusive of services such as maintenance and other support services.
The following are examples of Investment Holding Companies in Malaysia:
- IOI Group is an example of an Investment Holding Company with a diverse range of subsidiary companies. Though IOI Group generates most of its income from its ownership of palm oil plantations, it also owns refineries and real estate factories.
- IHH Healthcare is an example of an Investment Holding Company that is an Immediate Holding Company and is horizontally integrated. The Holding Company owns other Holding Companies in the private healthcare industries in various countries.
In a Nutshell
A Holding Company can be structured in many ways and setup for many different reasons. A Holding Company may own companies in the same or different industries, or the companies may be part of the supply chain or produce the same product or services. A Holding Company which owns many other companies may itself be owned by another Holding Company.
Whatever the Holding Company structure, the purpose is to help businesses mitigate the risk of losses, assist the business in expansion into different industries and/ or other countries and allow the differentiation of brands for business reasons. After reading this article if you have further enquiries, do contact Paul Hype Page and we will be glad to assist you on holding companies.