A holding company is often used in a corporate structure as the parent of a subsidiary. With the ever growing internationalization of businesses, company structures often involve several countries and legal systems. To optimize the structure and its efficiency, the parent or holding company must be established in the most appropriate forum. The state of Delaware in the USA is for many international businesses such an appropriate place of corporate establishment.
The focus of a holding company is on management activities. Even though most holding companies are indeed used to hold shares in other companies there are also other functionalities for this corporate structure. A holding company can protect intellectual property and hold its IP right, possess real estate projects, and can be used to enter into civil agreements that require the separation between the beneficiary and the legal entity.
Alongside its familiar potential, business owners may have distinct reasons to use a holding company to manage corporate activities. The title of a holding is nothing more than a name and therefore does not grant any additional advantages over a traditional legal person with limited liability in the same jurisdiction. However, when a holding is used to execute passive activities such as management and control of subsidiaries, assets or other rights, several requirements apply.
Corporations have a limited liability for its shareholders. Furthermore, staff members are retained by the company via a civil agreement. The result is that there is always a strict separation between the individual natural person and the company. Severe wrongdoing on behalf of the company can lead to personal responsibility and liability when the court accepts such double accountability. Actions and confirmations by the court to pierce the corporate veil are separate from personal liabilities of employees when such is not covered by their contractual duties.
From a legal perspective, a company with limited liability is a standalone legal entity. As such there is no justification to address any of the other companies in a group for an infringement or alleged wrong by one of the isolated and individual companies in the group. The court may pierce the corporate veil for serious and deliberate misconduct by an individual and therewith address all the holdings of a beneficiary.
Delaware Holding Company
Incorporation of a Delaware holding company requires a close examination of the designated company laws. The holding company formation must fulfil the needs of the beneficiary and possible other legal entities in the group. As such, a close examination of the individual situation and applicable local systems is needed to come to the optimal corporate structure.
The objectives and purpose of the business and thus the activities are defined in the articles of incorporation. The company therefore cannot just be used for any activity. This also is addressed by partners and civil parties who provide services to the company. Financial institutions for example may restrict incoming and outgoing payments that are not justified by the articles and memorandum of association and incorporation.
A Delaware holding company provides its owner with several advantages. However, local and international legal frameworks must be considered to qualify. Business people who follow the rules both in Delaware and abroad in the countries where they operate experience an attractive and business friendly corporate environment to build an international corporate group or asset protection vehicle.
Setting up and maintaining a Delaware holding company should be an efficient and time-saving exercise. Compliance with rules for establishment and international corporate residency ensures a focus on the growth and stability of the corporate group instead of the administrative overload that results from regulatory breaches. Therefore, please complete the contact form below so we can guide you through the incorporation and maintenance procedures of your Delaware holding company and international group structure.