Tax Planning for You and Your Family 2019 by KPMG. p 225.

A holding company is often appropriate where you have family members involved in your business (perhaps for income splitting purposes), and there are other shareholders not related to you. If you and your family members own shares in the holding corporation, and the holding corporation owns all of your family’s interest in the operating company, the other shareholders of the operating company need not be concerned with your internal family arrangements.

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    The point is, they shouldn’t be concerned. The holding company creates a way for the internal family arrangements to be opaque to the rest of the owners. – prl Nov 26 '19 at 6:47
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    @prl I think the question is why you'd be concerned without the holding company, i.e. "why is a holding company better?" The answer is likely "so lawsuits between disagreeing family members don't impact the company at all". The lawsuits would just affect the holding company. – ceejayoz Nov 26 '19 at 14:17

Why would the operating company's other non-familial shareholders be concerned with your internal family arrangements?

When forming a partnership, with other persons, it is recommended that a legal document be drawn up that covers adverse conditions often referred to as "the 5 D's". That is divorce, disinterest, drugs (illegal activity), death, or default (personal credit problems).

Family squabbles tend to accentuate all kinds of adverse behavior in business. Especially when a business founder passes away, and leaves a portion of their business to several heirs. By using a holding company for the family members, non-family members are insulated from the family squabbles. The holding company represents the family as one voice.

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