A holding company is usually established to hold assets for investment purposes, in contrast with an operating business, which exists primarily to derive profits by selling some product or service. Holding companies typically hold real estate, marketable securities, or both, or sometimes other assets such as an art collection.

Holding companies are usually organized in these forms:

  • Limited Partnerships including Family Limited Partnerships (FLPs)
  • LLCs
  • General Partnerships
  • Sub-S Holding Companies

These forms of ownership provide tax advantages and also a great deal of flexibility in how the assets are managed and the benefits are distributed. They provide a means for the original asset holders to retain nearly complete management control, while sharing most of the value with investors, family members, and charitable organizations. In addition, they provide a means for maintaining a block of assets rather than dividing it among heirs and for passing down control to successors in an orderly and well-considered manner.

BEAR’s approach to valuation of holding company interests originated with a paper co-written by a BEAR principal which was published in Trusts and Estates in 1996. The value is driven by the distributions or total return generated by the net assets. Discounts for non-controlling interests tend to be in the 30-40% range. This approach has been accepted by the IRS in every case, with just three cases resulting in minor adjustments.

In order to appraise an equity interest in a holding company, an appraiser must have a thorough understanding of the company, its purpose and operational composition, and the equity rights of its interest holders. This understanding, combined with expertise in selecting the appropriate methodologies and applying the proper discounts is required for a competent valuation. BEAR has valued controlling and non-controlling interests in roughly 400 holding companies over a 20-year period, almost all for gifting and estate purposes.

BEAR, founded in 1986, is a business valuation firm working through a nationwide network of valuation experts, CPAs, business brokers, and consultants. Among our staff we have the major valuation credentials, including ASA, CPA/ABV, CVA, CFA, and MVS.