A holding company is a business entity that owns shares in other companies without conducting operational activities itself. The holding primarily serves as an owner and oversees the subsidiaries.
A holding company is a business entity that owns shares in other companies without conducting operational activities it self. The holding primarily serves as an owner and oversees the subsidiaries.
A holding structure is a business setup in which a parent company (the holding) manages one or more subsidiaries. The subsidiaries handle daily operations, while the holding company provides strategic oversight and control. This structure helps businesses manage risks, take advantage of tax benefits, and optimize operational efficiency.
A holding structure offers both financial and operational advantages. One of the primary benefits is risk diversification. Subsidiaries bear the operational risks, such as legal issues or financial losses, while the holding company remains protected as it does not engage in direct business activities.
- Risk diversification: By concentrating business activities in the subsidiaries, the holding remains protected from financial risks, such as debts or bankruptcy.
- Tax benefits: Due to the participation exemption, the holding can receive tax-free profits from subsidiaries, preventing double taxation.
- Asset protection: In case a subsidiary goes bankrupt, the holding retains its assets, making it easier to start new business activities without losing financial resources.
- Flexibility in business operations: A holding can manage multiple subsidiaries operating in different industries, allowing for strategic opportunities and better risk distribution.
- Management fees: The holding can provide management and consulting services to the subsidiaries and receive compensation, creating an additional revenue stream.
Setting up a holding company requires careful planning and legal advice. The main steps are:
- Establishing the holding: The holding company is incorporated through a notary and registered with the Chamber of Commerce. The legal structure is defined, and shares are distributed.
- Setting up subsidiaries: The holding can establish one or more subsidiaries to conduct operational activities. The holding company owns the shares of these subsidiaries.
- Profit distribution: The subsidiary can transfer profits to the holding through dividend distributions.Thanks to the participation exemption, this can be done tax-free.
- Management and control: By owning shares, the holding has decision-making power over the subsidiaries without being directly involved in their daily operations.
Considerations and potential drawbacks
While a holding structure offers many advantages, there are also important factors to consider:
- Costs: Establishing and maintaining a holding structure incurs additional costs, such as notary fees, administrative expenses, and the preparation of separate financial statements for both the holding and its subsidiaries.
- Administrative complexity: Managing a holding structure requires extensive administration and specialized knowledge, which may lead to higher accounting and tax advisory costs.
- Legal and tax risks: Changes in laws and regulations can impact the tax benefits of a holding structure. It is crucial to stay informed and seek legal and tax advice to mitigate risks.
A holding structure can provide tax savings, risk diversification, and asset protection but also involves extra costs and administrative requirements. It is essential to assess whether a holding structure aligns with your company’s goals and scale.
Would you like advice on setting up a holding structure? Contact DKB-Finance. Our experts are readyto assist you in making the best choices for your business.
