Holding Company vs. Trust: Understanding the Key Differences
In the world of business and investment, there are different organizational structures are used by investment companies and investors to hold assets. A holding company is a commonly used structure in which one business acquires the ownership rights of another. A trust can be set up to hold other investments for an individual or for investors.
Holding Company
A holding company is a company that owns a controlling interest in another business. While some companies merge with others in an attempt to integrate them into the business, holding companies tend to keep everything separate. The holding company will allow the acquired business to continue operating under its name, and the holding company will simply collect profits from the business operations. The holding company also can make strategic decisions for the businesses it owns.
Investment Trusts
One type of trust involves a company that holds a portfolio of investments. For example, a unit investment trust is similar to a mutual fund in that it purchases many securities such as bonds or stocks and then sells shares of the portfolio to investors. Investors who buy these shares have a portion of ownership in the entire portfolio. The investment trust is typically set up for a minimum amount of time, and at the end of that term, the securities are sold.
Personal Trust
Another type of trust can be used by an individual for estate planning. When an individual uses a trust, he can transfer property over to it and hold it in the trust. Then the property can eventually be transferred over to a beneficiary at some point in the future. When the owner of the trust sets it up, he can transfer personal property as well as investments that he owns into the trust account. These investments can then be passed on when the owner of the trust dies.
Considerations
While both a holding company and a trust can hold investments, the holding company usually involves larger companies. Trusts are more for individuals and, in some cases, investment companies that want to offer shares of a portfolio to investors. The holding company may also be used to keep business interests separate while still maintaining a level of control over the business that is held. For example, if a business did not necessarily want to be associated with the image of another company while still profiting from it, it can use a holding company.
-
Modigliani-Miller Theorem: Understanding Capital Structure & Firm Value
The M&M Theorem, or the Modigliani-Miller Theorem, is one of the most important theorems in corporate finance. The theorem was developed by economists Franco Modigliani and Merton Miller in
-
Understanding Cross-Holding: Risks & Implications
Cross holding, also referred to as cross shareholding, describes a situation where one publicly-traded company holds a significant number of shares of another publicly-traded company. The shares owned
investing
- Structural vs. Seasonal Unemployment: Understanding the Differences
- Trust vs. Escrow Accounts: Understanding the Key Differences
- Trustee vs. Custodian: Understanding the Key Differences
- Unit Price vs. Stock Price: Understanding the Key Differences
- COMEX vs. Spot Gold Price: Understanding the Difference
- Debt vs. Bonds: Understanding the Key Differences
- Rate of Return vs. Interest Rate: Understanding the Key Differences
- Easement vs. Right of Way: Understanding the Key Differences
- Holding Companies: Definition, Purpose & How They Work
-
Stocks vs. Shares vs. Stakes: Understanding Ownership in CompaniesThe Difference Between Stakes, Shares and Stocks In exchange for a sum of money or professional services, individuals and institutions can become partial owners of a company. Stock, shares an...
-
Amortized Cost vs. Market Value of Securities: Key DifferencesAmortization helps predict profits, but market value controls them. Amortization is a process, and market value marks a place in time on securities -- stocks, bonds and other investments -- o...