In Singapore, you can set up holding companies to own assets. This strategy can be helpful in estate distribution and asset protection planning. According to the definition obtained from IRAS, a holding company refers to a company which has the principal activity of investment holding. The company owns investments such as properties & shares for long term investment & derives investment income such as dividends, interest or rental.
To illustrate the above point, ABC Pte Ltd will be used as an example. ABC Pte Ltd was set up by a (late) prominent banker in Singapore as an investment holding company. Amongst the many assets it holds resides 81,223,402 UOB shares. At the time of this writing (24 Dec 2012), the market value of these shares is approximately S$1.5B. The average dividends received is approximately S$10M per year. Besides its enormous investment value, these shares also have sentimental value as they represent the banker’s vision and hard work many years ago when he founded a local bank, which was later merged into UOB. The shares, amounting to 5.15% of UOB shares, also enable the banker’s family to have credible voting rights in charting the bank’s future direction. Besides UOB shares, this company also has strategic holdings of other investments around the world.
Holding shares and other assets in a holding company simplifies estate distribution. Instead of distributing each individual asset to the beneficiaries, the banker’s estate plan just has to identify the respective beneficiaries to receive the appropriate shares of his holding company.
A second advantage of a holding company is asset protection. Assume Peter is an heir to a family business. Peter inherited a commercial building from his late father’s estate, as well as the majority of the shares of the family business. This family business runs its operations within a commercial building. As the building is booked under the business balance sheet, Peter is concerned that if the business fails, it will affect the commercial building, as he has promised his late father to preserve the building as it is where the family business started 80 years ago.
Peter decided to set up holding company to hold the building, and lease it back to the operating business. The shares of the holding company are held by the family. In this way, the benefits of the building can be fairly distributed amongst the family members, and should the operating business fail; it will not affect the holding company’s assets.
Setting up a holding company could be a good strategy if you are experiencing any of the following situations:
- You have numerous investment properties
- You have numerous investment assets of different asset classes.
- You inherited substantial assets and would like to hold them for the long term.
- You are concerned that the family business operation could contaminate your family business’s properties or assets.
- You want to ease the administration of holding various assets.
- You want to ensure that all family members can enjoy the financial benefits of the assets fairly.
- You want to have a smooth estate transfer of multiple assets to your beneficiaries.