Profits developed by a successful business are often reinvested into working capital to continue its growth.
Company owners may also make a decision to capitalise some profit for the longer term, by investing it in tangible fixed assets (plant & machinery property) or acquiring other businesses. Acquiring capital assets of this nature may also help the business growth or it could be seen as a way of securing its base and increasing profitability in the mid to long term.
If material capital assets are acquired then they are valuable to the company and its shareholders and it is wise to be pro-active in protecting their ownership and value.
The use of a holding company is a relatively straight forward way of protecting a business’ fixed capital base.
Property, plant and machinery and ownership of other businesses can be distributed to a holding company from the existing trading company, so that creditors of the trade can never have a claim over those capital assets.
