The Advantages of Holding Companies for Startups in 2024

The Advantages of Holding Companies for Startups in 2024

In recent years, many companies in the region have opted to establish their holding companies in the United States. This trend is primarily due to the security and confidence the U.S. market offers to investors, both in private and public capital markets. But what exactly is a holding company?

A holding company is an entity whose main function is to own shares of other companies and subsidiaries. In this model, there is a dominant company with other companies subordinated to it. This approach is increasingly popular among Latin American startups, especially in sectors like technology, fintech, and biotechnology, due to the various advantages it offers.

Startups seeking venture capital investment in their early stages find it more attractive to establish a holding company in the United States. This is because investors feel more secure financing a company with a legal structure in the U.S.

For example, if a startup operates in several Latin American countries such as Argentina, Uruguay, Paraguay, and Chile, the investment is managed through the holding company's bank account in the U.S. This ensures that the remaining capital is protected and available in a stable and secure environment.

Simplification in Buying and Selling

The process of selling a company is much simpler if there is a holding company. By acquiring the U.S.-based company, the buyer automatically becomes the owner of all subsidiaries, regardless of their global location. In contrast, if the companies are dispersed and under the original owners' direct ownership, the sale process can be complicated and tedious due to the lack of a centralized structure.

Coordination and Unified Direction

Companies subordinated to a holding company have their own legal entity but do not have decision-making autonomy. This allows the organization to function in a coordinated manner with a clear and unified direction. Additionally, it facilitates the distribution of profits to investors and the reallocation of investments among the various subsidiaries, optimizing operational efficiency and aligning business strategies.

What Is An LLC Holding Company? - IncNow

Access to the Stock Market

One of the major goals for many entrepreneurs is to conduct an Initial Public Offering (IPO) on the U.S. stock market. This process allows the company to offer its shares to the public. To achieve this, having an appropriate structure, such as a holding company in the U.S., is essential and commonly necessary.

Importance of Tax Advisory

Deciding to establish a holding company in the United States is not a trivial decision. In some cases, this structure can be highly efficient and recommendable, but in others, it may be counterproductive due to tax implications. Therefore, it is crucial to have professional advisory before advancing with this type of corporate structure to avoid potential issues and maximize benefits.

Establishing a Holding Company in the United States presents significant advantages for Latin American startups in 2024. From enhanced investor confidence and legal stability to simplified operations and potential access to the U.S. stock market, this strategic move can streamline growth and facilitate international expansion. However, careful consideration of tax implications and professional guidance are essential to harnessing these benefits effectively.