A holding company is a type of business that holds assets for a variety of reasons and can include capital appreciation, succession planning or tax planning. The type of asset classes a holding company holds can vary and some examples would include a portfolio of investments, real estate, intellectual property rights and shares in other companies. If the holding company is holding shares in other companies, this can be small percentage holdings known as small holding investments (under 20%), associates for shares held that give significant influence in voting (usually 20% or more) or subsidiaries (over 50% and thus direct control over any decision making). Usually, holding companies don’t produce any goods or services and are not deemed a trading company.
A personal holding company is a company that is owned by an individual or small group of individuals. The company’s main purpose is to hold assets for the benefit of its owners. This includes investments, property, and other assets. A personal holding company usually, if set up correctly, could have taxation and fiscal benefits and can also help with succession planning. It is usually a straightforward regulatory process to move shares from an old owner to the new owner and can be actioned in a matter of days. As an example, if the holding company held real estate property, you can change the ownership of that property indirectly through the transfer of shares in a matter of days compared to a matter of months to change the ownership of the real estate directly.
A trust is a fiduciary arrangement that allows the grantor (the settlor) to give a second party (the trustee) the right to hold assets for the benefit of a third party (the beneficiary). A trust can be used to determine how a person’s money or assets should be managed and distributed while that person is alive, or after their death. As a result, they are used commonly and successfully for succession and estate planning to move assets in a controlled manner (as per the settlors wishes) to the heirs.
Trust law derives from English Common Law and are popular in the United Kingdom and some jurisdictions such as Malta which has legislation for trusts (common law) and foundations (civil law).
A trust can be tax efficient if set up correctly and planned well, can protect assets from creditors, and can dictate the terms of an inheritance for beneficiaries. They are also commonly used for charitable purposes.
A foundation is a legal entity that can be used to hold and manage assets. They are a similar concept to trusts but are based on civil law which is used mainly in continental Europe as opposed to common law which is used primarily in the United Kingdom.
In Malta, foundations can be used for a variety of purposes, including holding and managing assets, distributing income to beneficiaries, and providing support for charitable causes. Foundations are subject to Maltese law and must be registered with the Malta Financial Services Authority (MFSA).
While it may seem that there are many similarities between holding companies, trusts, and foundations, there are notable differences. As always, you should always take professional legal and tax advice when considering if one of these legal vehicles is right for your own personal circumstances.
Contact us for a free no-obligation consultation and we will discuss any queries you have. Enquire with our team directly by filling out our short enquiry form below and we will get back to you within 24 hours.