Holding Company as business strategy is the backbone of most thriving Ghanaian organizations. Although this strategy can be the roadmap which leads to the desired goals, any fault in this roadmap can result in the business getting lost in the crowd of overwhelming competitors.
With the increase in the business competition, the importance of business strategy is becoming ostensible and there’s a huge increase in the types of business strategies used by most Ghanaian businesses.
A holding company is a company that has a controlling interest in another company. In other words, a holding company is a parent company that owns enough outstanding stock in another company to exercise complete control over its policies and managerial decisions.
The company that the holding company controls is called its subsidiary. Hence, if a holding company owns a hundred percent stake in a subsidiary, that subsidiary is called a wholly owned subsidiary. Holding companies as well as their subsidiaries can be corporations, limited liability partnerships or limited liability companies.
A holding company is not liable to pay compensation to investors if one of its subsidiaries goes bankrupt. Successful corporations usually distribute their assets, including intellectual properties among their subsidiaries. This not only minimizes their liabilities but also provides tax benefits in cases where subsidiaries are situated in lower tax zones.
A holding company may also help individual investors secure their personal assets by placing their asset investments with a subsidiary, so that during an event of bankruptcy, the investors personal assets are safe from potential compensation claims. The management of a holding company is expected to oversee the functioning of its subsidiaries. However, it is usually neither possible nor advisable for a holding company to micro-manage its subsidiaries.
This job is best left to the management of the individual subsidiaries, although the holding company still reserves complete authority to appoint or dismiss managers of its subsidiaries. Being associated with a major corporation has its share of benefits for the subsidiaries as well. In the event that a subsidiary need to take a loan, its parent company can streamline the lending process by providing a downstream guarantee to the lenders on behalf of the subsidiary.
Such a downstream guarantee makes it possible for a subsidiary to acquire loans of substantially higher value and at more lucrative rates of interest than would have conceivable without a guarantee.
Key advantages of holding companies.
Holding companies can be used to reduce tax as well as provide important non-tax related benefits. While each situation may be different, as your company’s annual revenues and income increase, a holding company is likely something you should consider.
The potential benefits, including tax deferral and savings, income splitting opportunities and asset protection, will usually far outweigh the costs of incorporating.
Defer and save tax
Holding companies can help your shareholders defer and save tax on earnings because dividends from Ghanaian corporations should be allowed to flow tax-free between companies.
Earnings from an operating company can be distributed to individual shareholders as dividends.
If dividends are paid to a holding company instead, they can be held in the holding company tax-free. This achieves three things:
- it permits your shareholders to defer paying income tax until the earnings are withdrawn in future.
- it lets your shareholders decide when they will withdraw the funds and possibly save tax (perhaps after retirement when in a lower tax bracket).
- it permits the full amount of the dividends to be available to the holding company for reinvestment in other assets.
Another great potential advantage of company holding as a business strategy is that tax can also be saved by splitting income, and a holding company can enable this strategy which is especially beneficial for a family-owned business. By paying dividends to the holding company, the shareholders can eventually determine who receives the income.
To some extent, some family members can pledge for shares in the holding company, and tax can be minimized by splitting the income amongst individuals in different tax brackets.
Lastly, as a business strategy, holding company can protect its assets. If an operating company goes bankrupt or faces liability issues, creditors and litigators can go after its assets through recovery protocols. More importantly, for a small to medium size business, one claim can put a lifetime of accumulated profits at risk.
If excess earnings, investments and other assets have been separated to a holding company they are beyond the reach of creditors and liability claims originating from the operating entity.
As a business owner, you want to sell your shares rather than your business assets, so you can take advantage of tax savings such as the capital gains tax exemption on Qualified Small Business Corporation shares mentioned earlier.
MINKS HOLDINGS is a Ghanaian company with portfolios with several organizations across Africa and other parts of the world. Minks Holdings subsidiaries include; Duneline Koncept, Quemin Supply and Trading Ltd and Minks Industries Ltd. The company was established in 2014 with Duneline Koncept as its pioneer subsidiary company in Business Development and Consultancy, and has over the years spread its wings in commodities trading and agro-processing. The company started offering its services on 24th May, 2019.
What does the individual subsidiaries do?
The three subsidiaries of Minks Holding engage in business ranging from the retail sale of pharmaceutical and medical products through to agro-processing of foodstuff into finished and semi-finished foods. With each subsidiary being handled by experts in the various fields in which they do business.
Quemin supply and trading Ltd: Is a limited liability partnership that provides complete retail sales of pharmaceutical and medical goods as well as cosmetic and toilet articles. They offer consultation services to new and prospective customers on the various products in stock and how to safely use these products.
Minks industries Ltd: Is a limited liability partnership that engages in the purchasing of foodstuffs from supplier farms and processing them into finished and semi-finished foods for consumption as well as providing inputs to be directed to agriculture sites for use. Minks industries look to avoid direct competition with these firms by providing processing and preservation of wide variety of foods, which tends to solve a much more universal problem.
Duneline Koncept Ltd: Is a limited liability partnership that deals in the construction of building, roads and railways, as well as general cleaning of buildings, dry cleaning of textiles and fur as well as other civil engineering.
Benefits of products and services of the various subsidiaries to different stakeholders.
Minks Holdings through its subsidiary provides employment to different sets of individuals across various disciplines.
Minks Holdings through its subsidiary provides complete retail service to its customers that involves consultation services on how to use various products and inputs.
Minks Holdings through its subsidiaries engage in CSR activities by organizing free periodic medical checkups (Quemin Supply and Trading) as well as organizing free lectures about different types of medical conditions.
Farmers: Minks industries ltd provides a ready market for all farm products produced as well as storage facilities for different types of farm produce all year long. The company organizes knowledge and workshop sessions for farmers concerning modern and best farming practices to improve harvest.
Hospital: Constant and reliable supply of pharmaceutical and medical goods as well as cosmetic product to meet demands as per requested. Reduced cost associated with importation of pharmaceutical and medical goods internally by the hospital. Expert consultation of product benefits and usage.
Opportunities and Growth Strategies of Minks Holdings
All three subsidiaries of Minks Holding adopts the focused market approach by first targeting consumers in Accra and later rolling out to other regions of the country. This strategy of a more focused market approach helps avoid some risk associated entering the mass market from the word go. The various subsidiaries hope to build strong relationship with suppliers and customers alike by providing superior service than what is existing already in the market.
Minks Holdings Future Prospect
The various subsidiaries of Minks Holdings are poised to take on the challenges and opportunities available in the various markets in the agro-processing industry, retail sale of pharmaceutical and medical product industry as well as in the country. For the long term Minks holding through its superior services and its earlier strategy of practicing a focused market approach looks to meet the specific needs of each particular region. The main goal is to ensure that individual subsidiaries namely Quemin supply and trading ltd, Minks industries ltd and Duneline Koncept ltd leading firms in all their individual markets.
Scale up your organizations with a business holding strategy.
The writer is the Chief Executive Officer of Minks Holding
- Tel: +233 24 305 5716