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If you have multiple companies, you can organise them in an ultimate holding company structure. This type of business structure provides easier corporate control and greater asset protection. It is essential to understand how a holding company structure works and what each of the companies can do. This will help you ensure that you are running the structure correctly. This article will explain:

  • what an ultimate holding company structure is;
  • some potential benefits of this structure; and
  • what can happen if something goes wrong.

What Is a Company?

Owning a company means that you have decided to incorporate your business by registering it on the NZ Companies Register. A company is a separate legal entity. This means that it is legally distinct from those who operate it, or who have shares in it. A company has full responsibility for all of its legal and financial obligations.

Still, shareholders who purchase shares in the company are only liable for the money owing on those shares. They would also be liable for any personal guarantees they have provided to lenders or creditors. Each company must have:

  • a unique name;
  • an address of service; 
  • a contact office; and
  • at least one share, one shareholder, and one director.

A holding company must also have all of these and must meet all of the requirements a typical company would. The main element of a holding company is that it holds the assets of its subsidiary companies.

How Does an Ultimate Holding Company Structure Work?

An Ultimate Holding Company (UHC) is usually a holding company at the top of a tiered structure of companies. It will have subsidiary companies under it, and hold the assets of these subsidiary companies. Under this structure, the subsidiary companies typically handle the day to day operations. This means they will manage trading and any investments the companies themselves make. While the UHC sits at the top and oversees this process.

If you have a UHC as part of your structure, you need to notify the Companies Office. You can do this either at the time of your company’s incorporation or within 20 days of gaining the UHC. You also need to notify the Companies Office when you no longer have a UHC. This is because the public has an interest in who is controlling your company’s board, so this fulfils those requirements. You can do this process online. 

You need to tell the Companies Office your UHC’s:

  • name;
  • country of registration;
  • registration number or code (if any); and
  • registered company address.

Each time you fill out your annual returns, you also need to include the status of your UHC. Your annual returns are reports you file to the Companies Office every year, outlining if your company is still operating or not.

Subsidiary Companies

There are strict requirements to determine whether your company is a subsidiary under this structure. These include whether the UHC:

  • controls the makeup of the board of your company;
  • controls more than half the votes that can you use at a shareholders meeting;
  • holds more than half the shares of your company; or
  • is entitled to receive more than half of the dividends paid on shares issued by your company.

Liability in an Ultimate Holding Company Structure

A couple of the key benefits of an ultimate holding company structure is that it allows for:

  • greater asset protection; and
  • trade and investment flexibility.

This is because the assets of the subsidiary companies are held in the UHC. This means that if they go into receivership, the assets owned by the UHC cannot be claimed by creditors. This allows for investment flexibility and greater business growth.

However, this can only happen if there is a clear degree of separation between the subsidiary company and the UHC. Therefore, they both have to maintain their separate legal entity status. This would mean:

  • having separate boards of directors;
  • considering the liabilities of the companies separately;
  • the subsidiary company having employees of its own;
  • each company having its own bank account; and 
  • having other indications of separation.

This separation must be clear when a subsidiary company goes into receivership. Otherwise, a court can order a pooling of assets to pay creditors, using the assets held by the UHC. 

Key Takeaways

An ultimate holding company structure is a tiered business structure that you can use to protect your company assets. It also allows for greater investment flexibility. Subsidiary companies can conduct day to day operations with reduced risk. This is because their assets are held in a separate holding company. This company is known as the Ultimate Holding Company and sits at the top of the structure. A UHC structure has key advantages, as long as the companies uphold their distinct legal personalities. Otherwise, their combined assets may be pooled together to pay creditors if a subsidiary company goes into receivership. For more information or help with your own ultimate holding company structure, contact LegalVision’s business structuring lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a holding company?

A holding company is a separate company that holds your company’s assets. This means that your company (the subsidiary company) can continue day to day trading with less risk.

What is an Ultimate Holding Company Structure?

An ultimate holding company structure is a corporate organisational structure. It is made up of an ultimate holding company at the top, that holds the assets of its subsidiary companies. It does not take part in day to day operations, but manages the assets and can make decisions for the corporate structure as a whole.

What are the advantages of a holding company?

A holding company means that you can store your assets in a different company. So, if your company goes into receivership, the assets held in the holding company have a lower risk of being claimed by creditors to pay outstanding debts.

What does a holding company do?

A holding company holds the assets of its subsidiary companies, while they manage the day to day operations of the business. It usually holds majority shares in the subsidiary companies or another form of control, so it can make administrative decisions for its subsidiary companies and they can focus on business operations.

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