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Hi and welcome back to the business Career College video series in this video we're going to look at the holding company now the holding company it's really just a term that we apply to a company it doesn't have any particular meaning other than just to identify the role that this company fills you would need this information mostly at the financial planning level this is not so important at the introductory level for say a mutual funds or securities or life insurance licensing course, but this is quite important from a planning perspective the holding company is primarily a planning tool so really what identifies are what defines a holding company is that it doesn't own active assets but rather it owns passive assets and generally those passive assets are going to be shares of another business, so generally a holding company would be the major shareholder for another business so here's why we would do this maybe this will help to understand the holding company in general, so we have here an operating company, and we'll give this operating company just one shareholder, so we'll have Susan appear and Susan owns 100% of the shares of this operating company the operating company is doing well we're going to give this company a million dollars of assets, and we'll see that last year the operating company generated five hundred thousand dollars of net income or earnings and out of that Susan was able to make all of her living expenses with three hundred thousand dollars, so Susan took three hundred thousand dollars of that out, so we have two hundred thousand dollars that's retained here in the operating company now if this company were doing purely active business then you might not have to go through these steps but at this point Susan says well now we've got a little of an issue here I've got this money retained in my company, and it's really my money but if I take it out I have to pay personal tax on it, so she considers some of her problems here that to pull those funds out it's subject to personal tax if she retains it in here then it's subject to claims by her creditors she might be thinking about succession at some point, so she might have somebody who's interested in becoming a shareholder of OCO, but the problem here is that when you have this kind of money this retained earnings here it's that much more expensive for another shareholder to step in Susan doesn't want another shareholder to have access to that money necessarily that's the money that she earned so really what she's looking at here is possibly some concerns than, and we started this list already in a sense concerns around maybe creditor protection of assets all they have to be careful with that I there's a fairly well-known case in BC in which creditor protection was overturned simply because we used the term creditor protection we might be concerned about where to own some passive assets we might just want to keep our business pure, although you have to be careful here we'll...
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