How to set up a holding company
Discover what a holding company is, how to set one up and whether it could be worth doing.
A holding company doesn’t offer goods or services to the public, so what’s the point of having one? Read on to find out.
What is a holding company?
A holding company is a parent business entity, usually a corporation, which owns one or several other businesses. The holding company doesn’t produce or sell goods or services. Its only purpose is to hold the controlling share of its subsidiary businesses.
Why set up a holding company?
By creating a holding company, you could potentially set up the different arms of your business as separate companies. These would be subsidiaries of your holding company.
Here are the key advantages of doing this:
- Reduce your liability. Let’s imagine you owned an art gallery and also taught painting classes. By separating these arms into two subsidiaries of a holding company, you decrease the liabilities of each business. Now, if your art gallery goes into debt, creditors can only seek funds from the gallery business. They can’t take cash or assets away from your teaching business.
- Encourage growth and innovation. Let’s now imagine you wanted to pump money into an innovative new service, such as “virtual reality” art. If this risky unknown venture was part of a single business, it might put off existing or potential investors. However, by using a holding company structure, you can launch the “virtual reality” service as a brand new business that has no impact on the profits of your existing companies. Investors in these proven companies would then have no reason to worry about this new venture.
- Control your assets for less money. When you use a holding company structure, you can have a controlling interest in several companies without owning all the shares.
- Tax exemptions. You can often pay less tax as a business owner by setting up a holding company structure.
How to set up a holding company
The process of forming a holding company is no different to setting up any other limited company. Once your holding company is set up, you’ll have to transfer the ownership of your subsidiaries’ shares and assets to the holding company. A solicitor will be able to assist you with this process.
How much does it cost to set up a holding company?
As with any other limited company, it will cost £12 to register your limited company with Companies House online or £40 by post. On top of that, it’ll cost £170 to trademark your company name.
Setting up your holding company’s bank account
In order to ensure the holding company and its subsidiaries are separate, each business should have its own bank account. In terms of opening a business bank account, there is nothing especially unique about a holding company as compared to its subsidiaries.
Depending on the amount of turnover brought in by both the parent business and the subsidiaries, certain banks offer business accounts which may be more suited to your business’s needs.
Pros and cons
- Ring-fence your business arms and decrease your liabilities
- Encourage growth and innovation
- Control assets for less money
- Pay less tax, in some cases
- You’ll pay extra fees to set up the holding company
- The process of transferring assets and shares can be complicated and expensive
- When you sell a subsidiary of a holding company, this can create financial and structural complications
The bottom line
It might be a bit of an administrative hassle to set up a holding company, but if you have two separate business ventures, it’s often worth doing.
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