Large companies are often organized into business units (GM is supposted to be a primer on this). These units essentially function like smaller companies. The only difference is that the accounting and legal requirements that formal companies have are gone, and there are no taxes to be paid on services to other parts of the company. My question is, therefore, what is the rationale for not separating these business units into wholly owned subsidiaries. Alternatively, what is the point of creating subsidiaries, when you could create business units?
Could it be a startup-idea to create a holding company, where other startups could become business units?
Edit: Based on the answer from Jeff Oresik I will elaborate. Maybe the holding company should provide basic services to the startup companies. These facilities could include the following:
- An HR department
- IT-department helping with basic IT, and telephony setup
- Financial department, helping to access capital from investors
- Legal department
Buying services from a lawer can quickly cost 300$ per hour, while a lawer employed by the company could work for 10.000$ per month. This is just a huge difference and no simple tax trick. I know, though that the taxation is not the main reason for this price difference.