As tax professionals, we are often asked by clients to explain
the concept and appropriate uses of holding companies. The answer
generally is not straightforward; a variety of tax and commercial
factors are relevant in any particular case. Though it is beyond
the scope of this article to provide a complete list of potential
benefits and drawbacks, an introduction to several key issues will
be examined.
Creditor proofing and asset protection
For many businesses experiencing growth and increased
profitability, it is not uncommon for excess cash and/or investment
assets to accumulate. Shareholders often overlook the fact that
these assets are now subject to claims from existing or future
creditors. This should be a significant concern for those operating
in historically litigious environments. One solution is to transfer
any non-essential assets on a tax-free basis to a holding company,
thereby providing a degree of protection from creditors. There are
several
