NEW YORK–(COMMERCIAL THREAD) – The economic uncertainty generated by the COVID-19 pandemic has made the risk of venturing into new business segments more intimidating than ever for companies. But by structuring itself as a holding company, a business entity can help protect itself and its assets from the financial consequences of a failed business or legal action. However, if these same assets are not carefully distributed across the enterprise, the protection a business enjoys can quickly disappear. That’s according to a new episode of the recently launched CT Expert Insights podcast by Wolters Kluwer CT Corporation.
Sandra Feldman, Publications Lawyer at CT Corporation, explains that the popularity of the holding / operating structure is largely due to the degrees of separation it offers. As long as a holding company keeps the assets of its subsidiaries isolated from one another, the fallout from a possible slowdown in business or legal action is limited. Feldman uses the hypothetical example of a holding company that owns two operating companies during the podcast – one a successful widget maker and the other a restaurant struggling financially due to the pandemic.
âLet’s say the restaurant had to close for a while due to COVID-19 and has accumulated debts that it is struggling to pay. The restaurant’s creditors can only rely on the assets of the operating company that owns the restaurant to settle the debt, ânotes Feldman.
With this protection firmly in place, holding companies can invest in new startups or new markets without incurring any risk to their core businesses. However, the more operating companies a holding company has, the more complex its corporate structure and regulatory obligations will become. For example, holding and operating companies are subject not only to initial training fees, but also to annual compliance fees.
Feldman noted that many large holding companies invest in an entity management system to help govern the business. She also urged companies considering a holding / operating company structure to consult with legal experts who can help them weigh their unique set of pros and cons.
“And if they decide to go ahead, CT Corporation is a trusted partner who can help train the holding company and operating companies and also help with various post-training and compliance needs,” adds Feldman.
For nearly 130 years, Wolters Kluwer CT Corporation has been the leading provider of registered agent services, incorporation services and legal entity compliance. It is part of the Governance, Risk and Compliance (GRC) division of Wolters Kluwer and has a global reach in more than 150 countries. Over 75% of Fortune 500 companies, 95% of AmLaw 100 law firms, and 350,000 small businesses trust CT Corporation to manage their compliance needs. Wolters Kluwer GRC’s other legal services business is Wolters Kluwer ELM Solutions – a Global provider of corporate legal and expense management, contract lifecycle management and legal analysis solutions.
About Wolters Kluwer Governance, risk and compliance
Governance, Risk & Compliance is a division of Wolters Kluwer, which provides legal and banking professionals with solutions to ensure compliance with evolving regulatory and legal obligations, manage risk, increase efficiency and drive better business results. GRC offers a portfolio of technology expert services and solutions focused on legal entity compliance, legal operations management, banking product compliance, and banking regulatory compliance.
Wolters Kluwer (AEX: WKL) is a global leader in information services and solutions for professionals in the healthcare, tax and accounting, risk and compliance, finance and legal industries. Wolters Kluwer achieved 2020 annual sales of 4.6 billion euros. The company, headquartered in Alphen aan den Rijn, The Netherlands, serves customers in more than 180 countries, maintains operations in more than 40 countries and employs 19,200 people worldwide.