In the world of investment, many 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 corporation. 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 that it owns.
Investment Trusts
One type of trust involves a company that holds a portfolio of investments. For example, the 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. 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, a holding company can be used.
